PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.

Breadth of Private/Public Project proposals
Examples in the Partnership for Transportation Investment, chart

*Retained in subcommitte file.

FEBRUARY 10, 1995

Barrett, Hon. Thomas M., a Representative in Congress from Wisconsin
Barton, Hon. Joe, a Representative in Congress from Texas
Bass, Hon. Charles F., a Representative in Congress from New Hampshire
Biden, Hon. Joseph R., Jr., a U.S. Senator from Delaware
Blute, Hon. Peter, a Representative in Congress from Massachusetts
Castle, Hon. Michael N., a Representative in Congress from Delaware
Clayton, Hon. Eva, a Representative in Congress from North Carolina
Ehlers, Hon. Vernon J., a Representative in Congress from Michigan
Gejdenson, Hon. Sam, a Representative in Congress from Connecticut
Gekas, Hon. George W., a Representative in Congress from Pennsylvania
Hefley, Hon. Joel, a Representative in Congress irrom Colorado

Hilliard, Hon. Earl F., a Representative in Congress from Alabama
Hoekstra, Hon. Peter, a Representative in Congress from Michigan
Jacobs, Hon. Andrew, Jr., a Representative in Congress from Indiana
Moakley, Hon. John Joseph, a Representative in Congress from Massachusetts
Montgomery, Hon. Sonny, a Representative in Congress from Mississippi and John Robert Smith, Mayor, Meridian, MS
Neal, Hon. Richard E., a Representative in Congress from Massachusetts
Pomeroy, Hon. Earl, a Representative in Congress from North Dakota
Torkildsen, Hon. Peter G., a Representative in Congress from Massachusetts

Today, we will be completing our three-stage effort to gather facts and information on the Amtrak situation as we prepare to reauthorize Amtrak. Last week, as many of you know, we examined Amtrak's overall financial and operating conditions and we received a number of helpful suggestions from Members on Amtrak policy issues.

Today, we are going to hear from those who have dealt with Amtrak from either a policy or business perspective on how Congress might improve the current laws applicable to Amtrak. We are going to be hearing from Amtrak on the degree to which Amtrak is micromanaged by statute under current Federal laws.

The title of today's hearing is Amtrak and Statutory Mandates. As we will see, Amtrak has had numerous requirements and restrictions imposed on it by Federal statute governing matters that range from contracts to employee benefits. At the same time, Amtrak itself has been empowered to impose itself on others, usually the freight railroads using either special powers of Amtrak or the coercive legal power of the Federal government. We will be examining all of these as we move forward.

Here in Congress we talk about making the tough choices. We already know with respect to Amtrak that is not merely rhetoric. If we are to ensure the survivability of Amtrak, we are going to have to make some very, very tough choices. I hope that the testimony we receive will prove informative and helpful in making the right decisions on Amtrak.

On the other hand, I have no illusions nor should anyone out there that it will make the choices any easier.

I would like to state for the record that we are awaiting some Members of the Democrat side who, of course, are caught in transportation problems relative to the weather. Not Amtrak, I don't think, but I guess we will find out. And then after this hearing we are going to have a hearing on airplanes and why they can't get our Members here for hearings.

But we have received permission from the Ranking Minority Member's counsel that we may proceed in order to facilitate our witness's time. But I would like to welcome and recognize the Vice Chair of this committee, Mrs. Sue Kelly.

Mrs. KELLY. Thank you, Madam Chairman. And thank you for coming to testify today. I hope we are going to learn a great deal from all of you. Thank you very much.

Ms. MOLINARI. Thank you.

Without further ado, I would like to welcome and thank the Honorable James Burnley, the former Secretary of Transportation for being with us today. Thank you.

TESTIMONY OF JAMES H. BURNLEY, FORMER SECRETARY OF TRANSPORTATION, (19871989)

Mr. BURNLEY. Thank you, Madam Chairwoman and Members of the committee, for the opportunity to testify on the statutory impediments to the efficient management of Amtrak. I want to commend the subcommittee for undertaking the thorough investigation of the economic viability of Amtrak during this critical period for the railway corporation.

Before turning to the announced topic for today's hearing, I want to comment, if I may, on a related matter, the Clinton administration's proposal to fund the proposed fiscal year 1996 Federal subsidy for Amtrak of $1 billion out of the Highway Trust Fund.

Amtrak's problems are numerous and daunting, but they should not be addressed by a raid on funds which are collected from highway users with the explicit statutory promise that they will be expended on highway needs. The proposal also has the sinister effect of pitting highway users against supporters of Amtrak. I hope Amtrak's management will immediately make clear its opposition to this raid.

Both Chairman Shuster and Ranking Member Mineta are already providing strong leadership in seeking additional protection from such raids, and I am confident that they and the rest of the Members of this committee will be successful in thwarting this ill-founded scheme.

According to the just-released GAO report on Amtrak's current condition, Amtrak's financial and operating conditions have deteriorated to the point where continuation of current levels of service will require vastly increased Federal funding. Amtrak currently estimates that its operating expenses will exceed operating revenues and Federal and State contributions at their current levels by a total of $1.3 billion from 1996 through the year 2000.

Additionally, maintaining current Amtrak operations will require over $4 billion in new capital investments in that same period. As the Federal Government struggles to reduce its own deficit, it does appear highly unlikely such increases in funding will be made available to Amtrak. This dire fiscal situation is the result of a number of factors. One of the most important is the fundamental inconsistency in the Federal Government's oversight and control of Amtrak.

In 1970, Congress passed the Rail Passenger Service Act, which established Amtrak as a for-profit corporation to provide for intercity and commuter rail service. However, in that same act and thereafter, the Federal Government has burdened Amtrak with numerous statutory mandates severely restricting the discretion of Amtrak management to exercise sound business judgment. I would like to highlight a few examples of this damaging Federal micromanagement for the subcommittee this afternoon.

First, under the Rail Passenger Service Act of 1970, Amtrak must provide a statutorily mandated labor protection package more extensive than those imposed on freight railroads. These so-called New York dock benefits provide all Amtrak employees, including white collar management employees, with up to 6 years of salary continuation if their position is abolished, or if their work location is moved 30 miles or more. This requirement severely limited Amtrak's ability to focus operations on routes with high revenue potential.

Second, Amtrak is required to operate along a statutorily defined basic system of routes, unless excused pursuant to explicit Federal criteria. Any alteration in these criteria requires congressional assent. This restriction also prevents Amtrak from tailoring routes to the changing travel needs of the public.

Third, current law weakens Amtrak's ability to obtain full compensation from commuter carriers using Amtrak facilities in the WashingtonNew YorkBoston Northeast Corridor. If Amtrak and a commuter carrier fail to agree on a compensation amount, the Interstate Commerce Commission is required to impose an agreement. However, in determining the terms of this agreement, the ICC need not consider what are called the common benefit costs carried by Amtrak. Given that commuter carriers account for the vast majority of the rail traffic in the corridor, this mandate subjects Amtrak to substantial potential operating losses.

Fourth, the Federal Government has imposed several severe limitations on Amtrak's procurement practices. For example, Amtrak is absolutely prohibited from contracting out any nonfood-service tasks if even one bargaining unit employee would be laid off as a result.

Fifth, under the DavisBacon Act, all construction work for Amtrak or a joint project involving Amtrak must be contracted for at prevailing union wage as determined by the Department of Labor. This requirement not only imposes increased construction costs on Amtrak but also inflates costs for any private, State, or local entity which enters into a development agreement with Amtrak.

Finally, the Federal Government dictates that Amtrak must comply with a multitude of personnel and recordkeeping requirements including: adhering to the Freedom of Information Act; abiding by prescribed pay levels for directors and executives; and it even dictates that the principal place of business must remain in the District of Columbia.

The current state of Amtrak, economically troubled and burdened by Federal micromanagement, is clearly analogous to the Consolidated Rail Corporation in the late 1970s, which was created by Federal action in 1976. Conrail was saddled with thousands of miles of unproductive track, deteriorating physical assets, inefficient equipment, and an excessive work force protected by expensive labor protection agreements. Between 1976 and 1981, $3.3 billion in Federal funds were invested in Conrail and it was still losing money.

In 1981, Congress and the Reagan administration responded by enacting the Northeast Rail Service Act designed to free Conrail from the Federal burdens which were preventing the railroad from realizing a profit. Specifically, the act granted Conrail expedited abandonment authority, reduced Conrail's labor protection liability, and exempted Conrail from State taxes.

In 1981, using the freedoms provided by the deregulation under the Staggers Act of 1980, and the new benefit of NERSA, Conrail recorded a profit of $39 million. Following several profitable years, and I might add much more profitable years, the Federal Government was able to sell Conrail in 1987, receiving $1.9 billion for the rail system.

Now, I believe Congress should use the same approach to Amtrak's crisis that it took in 1981 to turn Conrail around. By removing the tremendous burdens I have outlined today, you would empower Amtrak's management to take its best shot at creating viable intercity service in some markets. Even if it turns out to be impossible to provide such service and make a profit, which I fear may be the case, you would have at least greatly reduced the need for Federal subsidies.

Again, I very much appreciate the opportunity to appear here, and I would be happy to answer questions.

Ms. MOLINARI. Thank you very much, Mr. Burnley, for putting in a lot of the problems inherent with the original agreement that created Amtrak and for giving us some hope by the Conrail comparison. Before I go to my questions, let me ask Mrs. Kelly if she has any questions.

Mrs. KELLY. Thank you. Yes, I do have a couple of questions.

Mr. Burnley, I am interested in the fact that you have the legal requirement by the basic system law that Congress has required you to operate under. Do you think that if we were to remove that legal requirement, that would help Amtrak operate in the black? Do you think that is really going to have an effect?

Mr. BURNLEY. You are talking about the basic service requirement? Is that the requirement?

Mrs. KELLY. You have a basic system that we have told you to operate by law. Do you think it is time that we take that legal requirement off and do you think that would really help you operate in the black?

Mr. BURNLEY. I think Amtrak will be unable most likely to ever operate any significant routes at a profit. But it will come much closer to covering its costs if that requirement is repealed, Amtrak's management is given the opportunity to make the best map it can in terms of intercity service, and to focus service on those routes where losses can be minimized.

Mrs. KELLY. One other question I have here about the fact that you point out that Amtrak's principal place of business has to be in the District of Columbia. I am curious as to how you feel that that will affect your economic picture if that stricture were removed.

Mr. BURNLEY. I don't know, Congresswoman, if that is a significant problem for Amtrak today. I would defer to Mr. Downs on that. It is another example where Congress has micromanaged Amtrak. And it seems if we want Amtrak to minimize its losses and maximize its revenues we need to give it the flexibility to put his headquarters where it thinks it can operate the most efficiently. That may be in Washington, D.C., or some place else but it seems that we ought to give Amtrak's management that flexibility.

Mrs. KELLY. Along that line, there has been some testimony here earlier about the possibility of Amtrak using a maintenance facility from the private sector, including the maintenance facilities of freight railroads. Do you think that that would help Amtrak's bottom line?

Mr. BURNLEY. Yes, ma'am, it would make a dramatic difference, as I understand the GAO report and some of the other testimony. Today, if even a single Amtrak employee's job would be adversely affected, Amtrak is forbidden by law to contract out. It seems that that is just indefensible at a time when there are tremendous burdens on the Federal budget. Again, we are long past due giving the management the flexibility to use in the maintenance area and throughout its operations whatever outside service it thinks it can best profit from using.

Mrs. KELLY. Thank you very much.

Ms. MOLINARI. Thank you, Mrs. Kelly.

Mr. Burnley, basically what you are saying is if we made all of these statutory adjustments that you suggested, you conclude that you don't think Amtrak would reach a profit so then therefore our bottom line is that privatization even in the future may not occur?

Mr. BURNLEY. I would like very much to be able to sit here and project a future as happy as that that Conrail has enjoyed since it was privatized in the spring of 1987, but the numbers don't seem to work quite that way for Amtrak. That is not entirely surprising given that they don't work that way for intercity passenger rail anywhere in the world. So given the competitive atmosphere which Amtrak faces on every route, even its Northeastern Corridor routes where it does very well, tough competition from the airlines, I think we have to be realistic and we have to assume that there will not be that kind of a happy outcome.

However, we can give Amtrak's management the flexibility I have described here today to greatly reduce the burdens on the Federal taxpayers. And perhaps with some additional support from the States, it may be possible in some corridors for Amtrak to put together financial packages that the Congress can live with and that make economic sense, perhaps not at the bottom line being black, but which are economically viable on a political level at least.

Ms. MOLINARI. Talking about the basic system and the fact that in order to restructure that right now Amtrak has to come back to Congress, and therefore what appears to be happening is that in order to do what they need to do to reach a bottom line, they are creating financial emergencies to circumvent that.

We have heard from testimonies that many of them don't have the opportunity to belly up to the bar and say we would like to help out. Would you support a proposal--one of the things that we have been toying with is a proposal that removes the ability for them to come--the necessity for them to come to us to make a route change for us to mandate it, but that they would have to give us some form of public hearing so that if the States or the cities wanted to help save it that they would be given ample opportunity before a route is eliminated?

Mr. BURNLEY. Yes, I think you can fashion a remedy of that sort. Again, with Conrail, the way Congress addressed that problem was to give Conrail what is called expedited abandonment authority. That didn't mean that Conrail could simply abandon routes without a public hearing but it did mean the process at the ICC was greatly abbreviated. So I think you can create a similar kind of mechanism, as you describe it, that permits locales that are going to be adversely affected to belly up to the bar as they say. But the bottom line has to be that Amtrak's management once it has gone through that process has to be able to go ahead and make those tough decisions that are driven by economic necessity.

Ms. MOLINARI. Getting to the ICC, as you know basically the President and this Congress has determined that the ICC will cease to function in the near future and we have had other deliberations on where it would be appropriate to take some of the existing requirements of ICC to put it into another DOT or DOJ. Do you have an opinion on that? Although I could guess what that would be.

Mr. BURNLEY. Madam Chairwoman, I was at DOT when the Civil Aeronautics Board was sunset, January 1, 1985. And we went through quite an exercise planning for that. Congress had legislated on the subject in 1978 and again in 1984 to correct some issues that were not addressed in 1978. And I think the department has a good story to tell about how that has played out since. And I think it is a model, just as Conrail is a model for Amtrak and how Congress treats it, similarly the CAB sunset process should be reviewed. And I do think the department is capable of handling the few residual functions that you would need to assign to somebody.

Ms. MOLINARI. And you would go along with fire walling that off to forestall any conflicts of interest with regard to Amtrak?

Mr. BURNLEY. I noted that in some of the testimony that you took previously. The department does hold the preferred stock in Amtrak. But the Secretary's pay is not dependent on Amtrak's performance. Nor, in fact, does the ownership of that stock loom on the horizon at all. If somebody goes in and reminds the Secretary that the department holds the stock, only then will he or she will it. So I think that is a phantom conflict and if there are those who are concerned that it could be turned into a real conflict, I would suggest assigning the stock to the Treasury Department or somebody else. I don't think the stock has to stay in the safe at DOT. I, frankly, don't know where it is. I hope it is over there but I can't tell you that it is.

Ms. MOLINARI. Fair enough. I would like to welcome and ask if he has a statement or questions, Congressman John Mica from Florida.

Mr. MICA. Thank you, Madam Chairwoman. I don't have an opening statement but I do have a couple of questions and I apologize. I was meeting with some local railroad officials back in Florida and so I got in late today.

I have a chicken and egg question, and I didn't have the opportunity to hear your testimony, Mr. Burnley. But obviously there is some dramatic reforms that are needed to take place, and I think you have probably outlined some of those in your testimony, revising some of the outmoded labor laws and some of the other regulatory burdens we have imposed on Amtrak, really setting them up over the years to not being able to perform.

My question is, I guess you have sort of nonperforming assets right now, and if you looked out and we were going to list like one, two, three, what would we do with what is left of this? First of all, we would probably have to discard some of the routes that have no hope of making money. And I guess we would have to revise some of the labor laws and some of the other regulatory laws first.

Then the question becomes, would you privatize first--give that nonperforming asset some kind of a kicker to the private sector or would you recommend that we, as the Federal Government, take that ability with these new--this new ability to perform, which is again right now a bankrupt operation--beef it up and then try to put it on the market and sell it? Which would you do?

Mr. BURNLEY. Congressman, I fear, and I did note this right before you came in. I do fear that there is no part of the system that can be made profitable when you do the arithmetic honestly and you take into account all of the capital costs.

One of the numbers I noted in the GAO report that you received I think a week ago is that there is still something on the order of a billion and a half dollars in capital costs just on the Northeast Corridor. So you are talking about numbers that will never work, I am afraid, in terms of actual privatization.

On the other hand, it is important to note that Amtrak technically is a private, for-profit corporation with its common stock owned by the freight railroads that transferred assets to it in the early 1970s, and it seems to me if you free up its management for the first time in Amtrak's history so it will manage the railroad like a private business would be managed, they are going to do much better. And their need for subsidies from Federal or State or local governments is going to be correspondingly reduced.

I hope I am wrong and I hope that Tom Downs and the very able people that he has around him can prove me wrong and can turn the system into a profitable enterprise, but I must say based on the arithmetic that we have today I doubt that would be the way that we would go.

Mr. MICA. So you are saying that we would first of all divest ourselves of the parts that have no hope of ever making money?

Mr. BURNLEY. Yes, sir.

Mr. MICA. That consolidation, combined with this legal regulatory reform, but even then, you are saying it doesn't have much hope of making money, that will always be a nonpositive revenue source.

Are you saying that in the national interest, I guess, we would weigh that, the value of that system and its performance versus, say, buildings, another airport, or another National or another LaGuardia or some other, you know, superhighway? It is always going to have to be subsidized.

Mr. BURNLEY. Congressman, I think that is exactly right. Amtrak, as I understand their numbers today, carries more of the passenger traffic in the Northeast Corridor than all the airlines combined. Now, if we were to shut down that service any time in the foreseeable future we would end up with a horrendous situation in the airports in the Northeast and on Interstate 95. And I don't think when all is said and done, any of us wants to see that unhappy outcome.

So I do think at the end of the process, whenever that end is defined, you are going to end up with some subsidies required.

Again, the thrust of my testimony today, I hope, has been that we need to emancipate Amtrak's management from the micromanagement by statute that we impose on them now and let them have the freedom of the private sector to manage this railroad as best they can. And then we will see how they do and you will make some tough judgments about what the subsidies are going to have to be in the future but at least we will get them down in a manageable way.

Mr. MICA. I appreciate your response.

Ms. MOLINARI. Just to close, then, Mr. Burnley, you do support some Federal subsidies to continue Amtrak, albeit not the current routes that we may have today?

Mr. BURNLEY. I must say, Madam Chairwoman, that I think subsidies are necessary. But billion-dollar-a-year subsidies are not necessary if we give Amtrak's management the freedom I have described. Nor are you going to be able to come up with them year after year. So, I do believe that we have all got to work toward the goal of dramatically reducing what it is that Amtrak needs. And that is inevitably going to mean, as Congressman Mica was suggesting, that some of the routes that are hopelessly unprofitable are probably going to have to be eliminated. But there will be at least some corridors, perhaps some city pairs, as they say in the airline business, where you can find at least enough revenue to come close to covering your operating costs. And perhaps then you could cover the capital costs and partially at least through some Federal subsidization.

Ms. MOLINARI. It is important for us to get on record for some of our colleagues to bring that back to them.

Anything else?

Mr. MICA. Madam Chairwoman, he points out three bad choices. You take on the labor laws and all of that, you end up eventually subsidizing, and the third thing is we throw the losing routes overboard so we should end up making everybody mad at us.

Mr. BURNLEY. All I can say, Congressman, it is a good time to be a private citizen.

Ms. MOLINARI. You said that as someone who worked for a Republican administration, too. Thank you. I think your observations are well taken, Mr. Mica. Thank you very much.

Mr. Burnley, thank you very much for your time and experience. We appreciate your sharing your expertise with us this afternoon.

Our next witness will be Mr. Edwin Harper, President of the Association of American Railroads.

TESTIMONY OF EDWIN L. HARPER, PRESIDENT AND CEO, ASSOCIATION OF AMERICAN RAILROADS, ACCOMPANIED BY ROB BLANCHETTE AND CHARLES DETTMAN

Mr. HARPER. Thank you. I bring with me Mr. Rob Blanchette on my right, former trustee of the New Haven Railroad and trustee of the Penn Central Railroad, former Federal railroad administrator, and our general counsel. And to my left Mr. Charles Dettman with 30 years' experience in the operation of railroads.

I will summarize my written statement, if I may.

We thank you for the opportunity to appear on behalf of the large Class I freight railroads in the United States. Twenty-five years ago, I was in government involved with the same task that this committee is now taking up. But with an important difference. We were trying to find a way to save the Nation's rail passenger system which was then losing in today's dollars $1.7 billion a year. But we were also concerned about the possibility that the freight rail network would collapse as well.

In the end, the government chose not to subsidize the freight system but to hope that taking the passenger burden off the freight track would enable the freight system to survive and that the passenger business could be restructured as an experiment to see if passenger service could operate on a self-sustaining basis.

The freights survived but Amtrak still needs Federal subsidies. By GAO estimates, Amtrak will require billions of dollars a year in aid, but this is consistent with the experience in Western Europe.

The Western European governments between 1980 and 1989 put in $101 billion in their rail systems. Whatever the right number is, the resources required to sustain a national rail passenger system are very large.

The freight railroads feel that they have already made their contributions to Amtrak. They helped initially capitalize Amtrak with cash and equipment worth $630 million in today's dollars. Amtrak is entering another restructuring not unlike the type that many major American corporations have had to go through when circumstances change. The restructuring of Amtrak will involve the cooperation of the freight railroads, Amtrak's biggest supplier, and that cooperation will be forthcoming.

The freight roads are not today seeking a change in the compensation scheme between themselves and Amtrak because they wish to explore the possibility of successful negotiations under the present statute. These negotiations are ongoing on a railroad-by-railroad basis. However, it is clear that no compensation scheme can cover the huge economic risk of tort liability. For that reason, tort liability is the freight railroad's top priority today.

A key to Amtrak's successful restructuring is an agreement among Amtrak, the freight roads, and the Congress on the three aspects of tort liability we will discuss in a moment.

The freight roads have no illusion that a national passenger rail system will ever be profitable. However, we offer some underlying principles that suggest some useful legislation.

Number one: if the Congress chooses to create new funding mechanisms for Amtrak, those mechanisms should include contributions from those who benefit from Amtrak's services, directly or indirectly. Freight railroads are not beneficiaries of Amtrak services and therefore in fairness should not be asked to contribute.

Trust funds including freight railroads are particularly inappropriate because they fail to take note of the unique characteristic of freight railroads among all modes of transportation. Unlike every other mode, the freight roads do not seek public assistance to maintain their rights of way. And do not, as a result, expect to contribute to any form of trust fund.

Number two, labor, income protection needs to be protected before significant route restructuring can be undertaken by Amtrak. Such legislation guaranteeing an employee income from his or her employer is unique to the railroad industry and should at least be recast.

Number three, if Amtrak service is discontinued, any entities that seek to become substitutes must buy in at arm's length. Amtrak was given special treatment in exchange for relief in 1971. There can be no piggybacking on that transaction 25 years after the fact.

Four, tort liability is a major economic concern in the railroad industry, particularly in the relationship between Amtrak and the freight railroads. Excessive tort liability awards have no place in a public service activity such as Amtrak.

Three aspects of tort liability must be addressed for Amtrak and its rail service suppliers: One, punitive damage awards should be eliminated; two, compensatory damages should be capped; and three, full indemnification should be permitted as a matter of Federal law. The Federal Employer's Liability Act, which only applies to railroad workers, this is costly divisive and should be repealed.

And five, the Federal Government cannot separate itself from risk pools to which it has committed Amtrak. The railroad retirement system is a federally created pooled risk just like social security. A young computer company cannot partially pull out of social security because its employees today are not the beneficiaries of the dollars it is paying into the system.

Similarly, Amtrak or its owner, the Federal Government, cannot pull out of its full railroad retirement responsibility. The railroad unemployment system is a similar obligation of Amtrak's owner. Amtrak's management has undertaken an ambitious restructuring but if they are to succeed they need your help in addressing these issues and resolving the tort liability issue in particular.

We would be pleased to respond to any questions you might have.

Ms. MOLINARI. Thank you, Mr. Harper.

Mr. Mica.

Mr. MICA. The area that you emphasized most I think was tort and liability reform. Can you give any estimates as to, you know, dollar figures or impact here? We are looking at a whole series of changes and I am trying to get some handle on what, say, this change--you talked about five different areas like punitive and compensatory changes in the law. Did you have some specifics on that and what would the financial impact be?

Mr. HARPER. The financial--

Mr. MICA. Guesstimates, you know.

Mr. HARPER. The financial responsibility, there is no way to forecast it. There could be one being created as we speak here that would exceed $100 million because these are functions of accidents that everyone is doing their best to avoid but do happen from time to time.

Mr. MICA. Well, you made another statement too that the freight railroads are not a beneficiary and I wanted you to elaborate on that. You made a point that they are not the beneficiary of any Federal largesse, that they are actually contributory in the Amtrak process. You were historically and are annually.

Mr. HARPER. Yes, the relationship between Amtrak and the freight railroad size that Amtrak, under restrictions of Federal statute, rents access to the freight right-of-way and the use of their rights of way in track. And by the statute they can only pay the freight railroads for the variable costs incurred as a result of having Amtrak use those with the potential for some incentive payments for the quality of service rendered by the freight railroads. So I think that you would find many of the railroads feeling that this is a nonprofit, public service indeed.

Mr. MICA. I think my light is on. I will come back.

Ms. MOLINARI. No, go ahead.

Mr. MICA. I am trying to get, also, to the point of how your association feels as far as their obligation--the way our system--you know the air system is a little bit different because you can put a plane in the air and just about fly anywhere. You put a boat in the ocean and sail just about anywhere. But with a railroad you have a fixed asset and a line that in this instance is limited to either passenger transit, freight transit, or maybe a utility corridor are about all of your uses.

How does your association view that as a national asset and an obligation of the Congress to contribute? And also your contribution? Because right now you are the biggest utilizer of the asset; isn't that correct?

Mr. MICA. But again, it is part of a national infrastructure item that is important to national security, to other national interests.

Mr. HARPER. I cannot emphasize too strongly the unique nature of the railroad system in the United States. When you talk about the highways, they are paid for with Federal tax dollars. When you talk about the airspace, the air traffic control system is paid for with Federal tax dollars. When you talk about the canal systems, they are maintained by the Corps of Engineers, they are paid for with Federal tax dollars. They are public rights of way.

When you talk about the railroad rights of way, they are private property owned by individual private corporations, with the exception of those tracks owned by Amtrak and a few miles of track relatively speaking owned by some governmental authorities but they are private property. They are privately maintained. There are no Federal tax dollars or any other tax dollars going into the maintenance of those rights of ways. That is the unique aspect of it and what makes it so hard to get your mind around the railroad as opposed to everything else that is a public mode of transportation.

Mr. MICA. But you still didn't answer my question about how you view this as a national asset. Do you view that in any way or are you just taking that, you know, it is private property and is there nothing there that the Federal Government should concern itself with?

Mr. HARPER. I guess in some ways it is a national asset such as the Bell Laboratories are a national asset. These are tremendous assets created over the years that are private property today used by the public on a fee basis and they are very important to our Nation's infrastructure. I mean, the railroads, for example, as an efficient mode of transportation enable the soybean farmers of America to be competitive in our world markets versus soybean farmers in Brazil who can raise their beans cheaper but cannot get them to the ports and world markets as near the price as we can with our private railroad system in the United States.

Mrs. KELLY. I notice that you urged repeal of the Federal Employer's Liability Act. That is the law that governs compensation to the injured railway worker. The GAO report that we received found that under the FELA, Amtrak pays twice as much per man-hour in injury claims as private industry pays.

You just asked us about tort reform. If we were able to enact tort reform, what effect would it have on these FELA awards? Do you think that we--if there was some way to bring those two in line, would that help?

Mr. HARPER. You have struck on a very, very important issue. We believe that FELA is an aspect of tort liability that deserves very serious study that we feel the present system needs fixing, and we would be delighted to work with you to find ways to do that. We think that prima facie an opportunity would be perhaps to repeal FELA as it exists and go with the State worker's compensation system. That certainly is one thing that deserves very careful study.

Mrs. KELLY. In your statement, you say that it has been exploited beyond belief but I don't have any facts and figures, and I wonder if you have some that you would be willing to submit for the record.

Mr. HARPER. Yes, we would be happy to file that information in the record and give you an historic view of the costs of FELA.

Answer: Tort reform could have a significant effect on FELA. FELA is a good candidate for reform as it shares many of the problems and abuses experienced by the civil liability system in general. All others industries are covered by the no-fault workers' compensation system for work-related injuries. The railroads believe that the most approriate reform would be to repeal FELA and treat railroads like all other industries by putting them under the State workers' compensation systems.
A look at recent historic trends under FELA (on the attached chart) underscores how the system has gotten out of control. Since 1981, the first year of deregulation of the industry, railroad employment and injuries have declined significantly while payout has skyrocketed. The chart speaks for itself, but I would add one point: the increase in payout, contrary to what you may have heard, is not due to the large number of hearing loss claims that have been filed in recent years. Most of those cases--many of which are of doubtful occupational orgin--are settled for little more than nuisance value. In fact, if they were excluded from the caculation, the average cost of FELA per case would be rising much faster than it is.
[The chart follows:]

[Insert chart here.]

Ms. MOLINARI. Thank you, Mr. Harper.

Just for the record, as you may know, GAO came to testify last week about FELA and its impact on Amtrak and claimed that Amtrak pays about twice as much in the per man-hour as private injury pays on average under the standard State worker compensation laws. Do you have the figures for the impact of that on freight?

Mr. HARPER. I don't know that we have that. I will try and see if we could develop that.

Ms. MOLINARI. If you could provide that, we will enter it into the record. Thank you.

[The response received follows:]

Answer: As the General Accounting Office recently pointed out, Amtrak pays out about twice what industry under the worker's compensation systems pays per employee hour worked, $0.67, as compared to $0.36. The comparisons for railroads as a whole is far worse. The industry as a whole paid out $2.11 per employee hour worked in 1993.

Ms. MOLINARI. Mr. Boehlert, welcome.

Mr. BOEHLERT. Thank you. I am a late comer so I didn't have the benefit of your testimony. I am trying to read through it.

I am concerned that people put things in perspective. And the talk is so much that we are shuffling out a lot of money to Amtrak over the years, and like this is something unique, no other country in the world subsidizes rail passenger service, which is not the case.

I know freight is your business, but talk to me, if you can, a little bit about what you know in terms of what other countries are doing to subsidize rail passenger service.

Mr. HARPER. Basically, we don't believe there is a national rail passenger system on earth that makes a profit. Period.

I asked the European Railroad Association if they would do a special study for me telling me how much the Western European governments subsidize their railroad systems because many people come back from Europe and say, why isn't Amtrak wonderful like the European systems?

I would stipulate up front that I think the agreement and nonagreement personnel of Amtrak do a wonderful job with what they have. But what they have had since the inception of Amtrak is $13 billion. In isolation that sounds like a lot of money. The study done for me of the Western European governments, their subsidies just in the years 1980 to 1989 was $101 billion. I dare say if Mr. Downs and his predecessors and its workers at Amtrak had had $100 billion to invest in Amtrak, the results would be significantly different.

Mr. BOEHLERT. I think that is a message we have to get out. I don't think many people understand that message. We are sort of very miserly with respect to what we invest in Amtrak which performs a very valuable service for the public at large. And in an energy efficient, environmentally safe sound manner.

I say this every opportunity I get. It is not going to surprise you or anyone in this room to learn that I am a fan and I can't figure out how we can expect Amtrak to be more appealing than it is if we don't give them the resources to make that possible. So I thank you.

Is that study a public study, Mr. Harper? Could you share that with the committee?

Mr. HARPER. I think I can release it. I will check with those who prepared the study and ask if I can.

Mr. BOEHLERT. Thank you.

[The information received follows:]

[Insert here.]

Mr. BOEHLERT. We will have future panels and we will have the same story and it is nice to have facts on our study. Thank you very much.

Ms. MOLINARI. I thank the gentleman from New York. The other gentleman from New York, Mr. Quinn.

Mr. QUINN. All people from New York are gentlemen.

Ms. MOLINARI. Mr. Mica, you should feel glad that we let you sit up here with us.

Mr. MICA. I was born in Binghamton, New York.

Mr. QUINN. That is as close as you are going to get.

Madam Chair, I apologize for being late. I just arrived. I don't have any questions of the panel but appreciate their input. And I will go after their testimony and will look forward to working with you and others.

Mr. Harper, let me ask you one more question. Without giving up too much information that may relate to any contract negotiations that you may be having in the upcoming future with Amtrak, in going through your statements, you refer to the capacity limitations affecting the rail freight traffic on the key corridors and the glowing stringencies of scheduling and the tendency of industries who use the railroads to rely on the just-in-time delivery standards. Aren't you basically saying that in your historical perspectives that the actual cost of freight railroads supporting Amtrak is increasing?

Mr. HARPER. That is certainly a logical conclusion in the data. I might point out that the negotiations between Amtrak and the freight railroads are being done on a railroad-by-railroad basis. And the association of American railroad size not directly involved in any of those negotiations.

Ms. MOLINARI. Okay. So the AAR does not have a position relative to the current formula providing adequate compensation?

Mr. HARPER. We feel and after talking to roads that they would like to try to negotiate with the present statute, but that really the overpowering and overshadowing issue is the matter of tort liability. And the three aspects of tort liability that are involved here in this public service activity which the freight roads have joined in with Amtrak, that in those circumstances we don't feel there should be punitive damages. We feel that compensatory damages should be capped and that there must be an allowance for a full indemnification of the parties by Federal statute.

Ms. MOLINARI. If you could fill me in a little bit. I am asking counsel but perhaps for the benefit of everyone here. He was explaining about a 1990 Federal law that limited liability on freight railroad facilities used by the Virginia railroad express. Are you familiar with that?

Mr. HARPER. If I may refer this to counsel.

Mr. BLANCHETTE. First of all, let me apologize for my laryngitis. There was in connection with the Virginia Railway Express a Federal statute passed which limited liability in respect of certain commuter operations going to Virginia as those operations were within the District of Columbia separately and as part of the same transaction, the Commonwealth of Virginia also undertook statutory action, I believe, to cap punitive damages and the ensemble was erected so that those operations could be sustained. My recollection is that the Federal law only dealt with the District of Columbia aspect of the commuter operations.

Ms. MOLINARI. Okay. Thank you very much.

Mr. MICA. Madam Chairwoman, if I may, do you view that as any kind of a model? Is this the kind of legislative remedy you are looking for or is that too narrow?

Mr. HARPER. We think it is probably too narrow. There have been some other statutes in other States, for example Massachusetts, which I think also provides some useful precedent, but I think this is probably something that would be most useful for us to sit down and work through in detail.

Mr. MICA. You say Massachusetts and some other States. So Massachusetts would be your best example?

Mr. HARPER. It is one that provides some precedent. I don't think there is a perfect State statute out there.

Mr. MICA. What about the difference in liability between freight and passenger? It is my understanding that freight also impacts passenger liability dramatically, especially where you have, you know, freight and passengers over the same lines which is the case in most of these instances.

Mr. HARPER. Yes.

Mr. MICA. The liability from freight, some type of a crash or hazardous material that is carried, et cetera, dramatically increases the liability on the side of the passenger service.

Mr. HARPER. The--I am not aware of any situation where hazardous material--

Mr. MICA. If you are an insurance agent, that has to be a consideration or if you are an insurer.

Mr. HARPER. I think the consideration is the passengers. That is the main liability that is out there and the major concern that everybody has.

Mr. MICA. But it is cheaper to insure freight but the freight I am saying is creating a higher liability for the passengers going over the same system.

Mr. HARPER. I don't believe it really, in practice, works that way.

Mr. MICA. Well, in the Northeast Corridor, for example, I was told that there are 1,100 trains a day; 1,100 trains a day and only 100 of those are passenger trains.

Mr. HARPER. They are largely segregated in which tracks they use, however.

Mr. MICA. Right.

Mr. HARPER. And many of those are commuter trains that, you know, would rarely, if ever, see a freight train.

Mr. MICA. And you are saying that the hauling of freight and the use of that in the same corridor does not increase the liability to personal injury for passengers or affect their rates?

Mr. HARPER. No, if anything if works the other way.

Mr. MICA. It does? Thank you.

Ms. MOLINARI. One last question. We have been hearing from the GAO and Mr. Burnley relative to the labor protection claims that could come about if we were to completely liquidate Amtrak relative to the C2 agreement, but I am also understanding there is a C1 agreement that covers freight railroad employees that have a relationship with Amtrak and there could be some financial consequences for the freight railroad if Amtrak were cut back substantially or liquidated?

Mr. HARPER. As I understand it, the C1 and the C2 provisions are independent in their functions of each other. If something were to happen to Amtrak per se, it would not materially impact C1. There are some historic contractual agreements which might allow for the possibility of some Amtrak employees going back to the freight railroads.

Ms. MOLINARI. But you don't have any idea what that impact would be in terms of numbers and salaries?

Mr. HARPER. We do not have that quantified and I think that would be fairly difficult to ascertain since the individuals involved are free to make their own determinations.

Ms. MOLINARI. Do you have the numbers in terms of how many could qualify?

Mr. HARPER. I do not have those numbers.

Ms. MOLINARI. Thank you very much, Mr. Harper.

If there are no other questions from the Members, thank you very much. Appreciate that. Thank you.

Our next witness is Mr. Greg Lawler, General Counsel for Save Transportation and Rail Transit.

Mr. LAWLER. Madam Chair and Members, thank you for the opportunity to testify. I am here representing START, the coalition to preserve a strong rail and transit system in the country. I am here to talk about the future of our national passenger railroad, Amtrak, and its 25,000 working men and women.

Amtrak is a vital component of our transportation system and our economy, as the Members of this subcommittee recognize. It is hard to imagine the greatest country in the world without a passenger rail transportation system. Just to repeat some facts with which people are familiar, just starting with the Northeast Corridor, Boston to Washington carries 11 million intercity passengers. And another 100 million commuters in a year.

Do we seriously believe that this number of passengers can be absorbed anywhere else?

The capital requirements to fund a new airport to put these passengers elsewhere is simply astronomical. The same thing is true in other corridors, L.A., San Diego, and others, and for other more rural communities, Amtrak is the only choice of public transportation.

We all know that Amtrak is energy efficient, environmentally friendly, and among the safest modes of transportation. The vision with gave rise to Amtrak's creation almost a quarter a century ago was founded on the sound principle that an economy that fails to offer legitimate choices for passenger transportation, including a viable intercity and cross-country passenger rail system is one doomed to gridlock, infrastructure overuse, environmental degradation, and ultimately failure.

Every economic power in the world supports and invests substantially in passenger rail transportation. While some now suggest that America's system be eliminated, our global competitors in Europe and Asia are planning to invest billions of dollars to ensure their passenger rail systems move people faster, safer, and more efficiently. Mr. Harper's number of $100 billion of investment in Europe compared with the investment of $13 billion in the United States is particularly telling.

The European Community currently has plans to spent another $100 billion to better utilize and integrate its multination network. There ought to be no disagreement over the need for Amtrak and rail passenger service in this country. As the Members of this committee know, the tough choice ahead will be how to preserve and enhance Amtrak while dealing with the difficult decisions on the budget.

Bear in mind that Amtrak's performance has been continually improving. In 1983, Amtrak recovered 53 percent of its operating revenues from fares. Today, it is 80 percent self-sufficient. That is a record of real accomplishment. Twenty-two million people ride Amtrak, 24 percent more than when Amtrak was created. Amtrak produces 35 percent more passenger miles than it did in 1980, yet its operating subsidy is 70 percent less in constant dollars. The Federal subsidy for Amtrak has decreased by 36 percent since 1983 in constant dollars.

Amtrak's employees have contributed a great deal to Amtrak's success. Back in the early 1980s, in order to keep Amtrak going, Amtrak employees gave up 12 to 15 percent in scheduled wage increases, and since then wages have lagged behind the industry standard for most employees. During the same time, worker productivity has skyrocketed. Work force levels have declined and passenger miles have soared as employees moved more passengers and maintained more tracks, cars, and locomotives.

There are a lot of myths about Amtrak, its performance and employees. And I would like to talk just about a couple of them.

First, zeroing out Amtrak is simply not an option. Someone is going to have to pay to maintain the Northeast Corridor for the millions of commuters who use it with or without Amtrak. I believe Amtrak has put a number of $200 million to maintain the corridor whether or not Amtrak uses it. To simply zero out Amtrak transfers that cost to the States who have to maintain that commuter network with no resources to pay for it.

Someone is going to have to pay for the railroad retirement system. Cutting 25,000 employees means the railroad retirement system would be $300 million per year short. It either has to be made up by the Federal Government or increasing the tax on the freight railroads who will continue to contribute to the system. Obviously, someone would have to pay for the increase in either our highway costs or our airport costs if Amtrak is gone.

Another myth is labor protection. You continually hear it is as if labor protection is somehow hurting Amtrak's financial performance. Last year, they paid approximately $500,000 to employees who lost their jobs. Those are insignificant labor protection costs, $500,000 with expenditures in the billions. Amtrak has the continuing right to furlough employees with no labor protection and has reduced its work force over the years without payment of any significant labor protection.

As an example, the cutbacks recently announced by Amtrak in December, it is Amtrak's position that labor protection is not an issue. There will virtually be no labor protection payments for most of the 5,000 employees who will lose their jobs. Other example, the Beech Grove employees in the shops in Indiana, several hundred have been laid off. They will receive one week's severance pay.

If there are any improvements that can be made to enhance Amtrak's performance, then Amtrak and its employees should sit down, discuss them, and find real solutions. Like any other company, Amtrak and its employees should be left to resolve these issues.

Like every other country in the world, our highway mass transit airport and air traffic control system port systems, they all receive government assistance at every level. Our rail passenger system is no different. It is entirely unfair and unrealistic to apply a separate test of values to Amtrak while the rest of America's transportation system enjoys substantial Federal support, as it should.

Some have suggested we ought to return to the days of private rail passenger service. How quickly we forget the history of passenger rail and the tumultuous events that gave rise to Amtrak's creation. Had it not been for the leadership of Congress and President Nixon, America would not have had a national rail passenger system because privately run systems were on the brink of extinction. It was painfully clear in the 1950s that passenger rail in this country would eventually vanish without proper government oversight and investment. Rail carriers were losing hundreds of million of dollars in passenger service. Not a single private railroad could earn money running passenger service.

For the future with a much needed infusion of investment, Amtrak can thrive well into the 21st Century. But if we consider other approaches like privatization or simply zeroing out Amtrak funds, the result will be a destruction of passenger rail in this country, the loss of 25,000 jobs, and serious long-term harm to the railroad retirement system.

Amtrak and its employees should be given the resources and the opportunity to continue to make progress. For decades, on a bipartisan basis, the Congress has agreed repeatedly on the need for strong passenger rail network and support for Amtrak and its workers. Please be assured we are eager to work with this committee to assure the future of rail passenger service in this country. I know the Members of this committee share the goals of enhancing Amtrak's future, and we look forward to working with you.

Mr. BOEHLERT [presiding]. Thank you very much.

Mr. Mica.

Mr. MICA. Well, I am just trying to figure out two different folks should recommend to pay for parts of the subsidy that we may end up--well, that we have in place if we revise this structure as we know it.

I would ask a question before--I guess there are about 1,100 trains in the Northeast Corridor and a small number for freight, about a thousand are for transit folks, and 100 for Amtrak. Something in that ratio. And the maintenance is 200 million?

Mr. LAWLER. I think it is more than that; 200 million is what would be necessary to maintain the corridor if there were no Amtrak around.

Mr. MICA. Who do you think should pay for that maintenance and how would you change that from the current structure, if in any way, if the Feds get out of it?

Mr. LAWLER. Well, I would suggest that the Feds not get out of it. That it is an interstate system running from Boston to Washington and, frankly, I can't imagine how you would have an interstate system with all of the difficulties of running an interstate system and not have it run by an interstate organization like Amtrak. I can't imagine that--

Mr. MICA. Basically, what you are seeing, though, is Amtrak, is this correct, that Amtrak is now absorbing the lion's share of that maintenance responsibility or not?

Mr. LAWLER. Amtrak is and continues to do the investment on the Northeast Corridor.

Mr. MICA. And if we charge back to all of those localities, State and local transit authorities, you are saying they can't handle it?

Mr. LAWLER. I am saying--I think it is fair to say, I recall them 10, 15 years ago, the disputes between Amtrak and the commuter authorities about how much the commuter authorities should pay on the Northeast Corridor, were very, very vigorous debates. To the extent that you say that a transit authority has to pay for the corridor, they are going to say we don't have any money for doing it, increase our transit assistance.

Mr. MICA. You are one of the first to say that the labor constraint and protection systems that are set up are of minuscule impact. You used one instance and it is $500,000, was it, last year?

Mr. LAWLER. It is my understanding that the last year's expenditures on labor protection, as it is called, by Amtrak was $500,000.

Mr. MICA. So you don't think that that is a big factor in this whole picture. That it is blown out of proportion?

Mr. LAWLER. I think if you look at the recent cutbacks announced by Amtrak and the fact that have you over 5,000 people that are going to lose their jobs--

Mr. MICA. If we take those 5,000 people and we are obligated to pay them 6 year's severance pay, that is a significant impact.

Mr. LAWLER. That would be a significant impact if Amtrak were going to pay labor protection 6 years to those people.

Mr. MICA. Is it $5 or $6 billion if we got out of that business totally--liability for 24,000, something like that?

Mr. LAWLER. I would have to do the simple math but I suspect it would be a number on that order of magnitude.

My point is for those 5,000 employees, Amtrak does not intend to pay them 6 years of protection for all 5,000 employees. It would be a very large sum, and you can ask Mr. Downs exactly what that number would be, but it is nothing approaching that.

Mr. MICA. But the problem is railroads are like other modes of transportation. We had canals and we had steam boats and we had other, the Pony Express. We didn't have subsidies of this nature or obligations taken on that to create this. I mean, when you are talking about a $5 billion obligation to the U.S. taxpayer, that is pretty staggering.

Mr. LAWLER. If it were a $5 billion obligation, that is a lot of money.

Mr. MICA. If we totally privatize it and dismiss those 24,000 employees, we are not going to do that whole picture, but you are looking at, if you eliminate a lot of these routes, and we do some serious downsizing to the Northeast Corridor and a couple of other routes, you are looking at probably getting rid of two-thirds of the people that now work for Amtrak, wouldn't you estimate?

Mr. LAWLER. I couldn't estimate one way or the other. The latest 20 percent cutback is going to result in the loss of 5,000 Amtrak employees, and I just repeat again, it is Amtrak's position that very few of those people are entitled to any kind of labor protection at all. As I mentioned, in Indiana there are several hundred employees that are losing their job and they are getting one week of severance pay.

Mr. MICA. Of the 5,000 employees that are going to be severed under this, what is the estimated cost, then?

Mr. LAWLER. You will have to ask Amtrak. We are not--we are not aware precisely of what that number is.

Mr. Lawler, just a general question. I know a week or so ago former Governor Florio was here to testify on behalf of the organization. Could tell me a little bit about START membership?

Mr. LAWLER. START is a coalition not only working on Amtrak but other rail transit issues. It is made up predominantly of the employees of Amtrak, labor unions, and some others. Hopefully, we will be expanding as the debate goes on.

Mr. QUINN. How long have you been in existence?

Mr. LAWLER. A matter of a few short weeks.

Mr. BOEHLERT. Mr. Lipinski.

Mr. LIPINSKI. Thank you, sir. Good afternoon. If I took a train, I probably would have been here on time. Unfortunately, I took a plane.

Mr. Lawler, you said that the employees who are losing their jobs at the Beech Grove shops will only get one week's severance. How about most of the other 5,000 employees who will lose their jobs as part of the recently announced cutbacks? What severance pay will they get?

Mr. LAWLER. Well, it is my understanding that the vast, vast majority of them, and I don't have the numbers because those are Amtrak's numbers and I am sure you will ask Mr. Downs shortly, that the vast, vast majority of them are getting nothing like the 6 year's protection that everyone say all Amtrak employees get. They are getting a very small severance package as I understand it. And a week or two of severance pay. There may be some small number who are getting some sort of protection.

The whole notion of a 6-year protection, the 13, it applies in the freight industry, it applies as well in the passenger side, was to maintain the seniority system where if someone who was an engineer and they had seniority they could be called back to the railroad at any time. They could be called back to work on Christmas Day and they were required to come and accept that job, accept that day's work or they lost their protection.

But it does not apply in this particular circumstance that we are talking about. And the particular numbers you will have to ask Amtrak because we don't have them.

Mr. LIPINSKI. Thank you.

Mr. Lawler, do you know what percentage of workers who are eligible for labor protection have chosen the 1-year lump sum option rather than the 6-year payout and would that be a satisfactory alternative in generality for rail employees who are laid off because of route closures?

Mr. LAWLER. I don't know the exact number. I am sure we could get it with the help of Amtrak or you could ask them for it. I think that is something that people would have to talk about and see whether that is a viable option. I am, frankly, not sure what Amtrak's reaction to that would be. As I said in my testimony, if there are problems with any of these, whether it is--someone mentioned the issue of contracting out before. They mentioned the 30-mile rule, which doesn't really exist for the most part. If those are the problems, the employees are willing to sit down as they have been with Amtrak and work these things out.

The 30-mile rule is a very good one. If you are a maintenance of way employee, the 30-mile rule doesn't exist. It is a 250-mile rule. If means if somebody lives in Baltimore and they are told to show up to work in New York, they are required to show up in New York. There is some mileage limit, as there ought to be, so that someone doesn't order you to show up in California next week and in Georgia the next week. But those are things that ought to be worked out between the Amtrak management and its employees.

I think Mr. Downs has indicated his willingness to try to sit down and work those things out, and the employees are eager to do that as well.

Mr. LIPINSKI. Thank you, very much.

Madam Chairwoman, I would like to ask unanimous consent to insert my opening statement in the record.

Ms. MOLINARI. Without objection, so ordered, and thank you Mr. Lipinski for participating at this hearing. We appreciate having you here.

Mr. LAWLER. If I may, while you are collecting your thoughts, this is really in response to a previous question about FELA. I think it is important to understand what the FELA system is about. It was set up for the railroad industry as its counterpart to the worker's comp system. Some have advocated the return--that the railroad industry, including Amtrak, rely on the State worker's comp systems.

I can't think of a better example of turning something over to State systems which are already under severe pressure. Everybody hears from their own States that their employer's comp system is in trouble. There is a bigger backlog. There are more lawyers involved in the worker's comp system than there are in FELA. Three-quarters of the cases on the railroad industry, there are no lawyers involved of any kind. It is just not--turning that back to the States without giving them the ability to deal with it and the resources to deal with it ought not to be an option.

I quote from a former chairman of the Norfolk Southern Corporation talking about FELA in congressional testimony in 1992: It has a tremendous effect on the corporation itself and on all other railroad corporations. This was one of the things that drove us to our current safety programs bringing workers on the very bottom line into the program with top management. Our activity there led us to a formal quality program because of the success we have had in reducing accidents, reducing injuries, and consequently reducing potential for FELA claims.

FELA works because it is a safety incentive. It doesn't--it is not something that is simply turned back to the States and say you deal with this without giving State worker's comp systems which are already overburdened more resources to deal with it.

Ms. MOLINARI. How would you react to GAO's estimates in their recent report that says that Amtrak pays about twice as much per man-hour in jury claims as private industry pays on an average under the standard worker compensation claim? People are shaking their heads. GAO said one thing and you are saying the other.

Mr. LAWLER. I did read the GAO report. We would be happy to give you all of the research that has been done that does not agree with that statement. I don't know, for example, whether that includes the severity of the injury. The railroad industry when there are injuries, they are often very severe. I also don't know whether that is as true of Amtrak as it is on the freight side. The railroad industry is a very dangerous industry.

Ms. MOLINARI. I would appreciate that if you could get us whatever information that you have to compare and contrast.

[The information requested not received at the time of publishing.]

Ms. MOLINARI. And if other questioners have asked this before you can bear with me. You have said as Mr. Florio did before, that the 6-year labor protection clause is something that is not utilized. You stated the 1994 labor protection of $500,000 is insignificant, and I would agree that relative to the structure that we are talking about, it is. Yet, if we were to acknowledge what just about everybody here has testified to and try to save the Amtrak system, I think it bears repeating that we are siting here trying to save the Amtrak system. I know Mr. Boehlert has expressed that claim. On Friday afternoon when I watch the rest of my colleagues having nervous breakdowns because of the storms, I rest assured that there is an Amtrak train that I can take to New Jersey and it makes me comfortable. We want to save it.

In saving it, there probably will undoubtedly have to be some routes terminated. How do we then deal with that 6-year labor protection clause that might not be so insignificant if we cut Amtrak's subsidies and say you have to do more with less and that means you have to cut some lines? What are we going to do with those employees?

Mr. LAWLER. I think everybody does understand that this subcommittee is trying hard to save Amtrak and everyone does appreciate that. I guess I would go back to the example that I have cited several times which is a 20 percent reduction in Amtrak's route network, which was approved by the Amtrak board in December, 5,000 people are losing their jobs. There is--most of those people are not getting 6 year's worth of labor protection.

Ms. MOLINARI. Why is that? What am I missing here?

Mr. LAWLER. The legal discussion about that is if you eliminate a route entirely there is a potential that someone would be protected. Most of these are not route eliminations. And obviously if you are working in a shop and it is not related to a route elimination, you know, it is--

Ms. MOLINARI. If we are going to deal with the reality if the conclusion is that the only way to save Amtrak is to eliminate routes then the cost does become a lot more significant, doesn't it?

Mr. LAWLER. If you are going to do significant route elimination, and absent some agreement otherwise between Amtrak and its employees, there would be some protection costs involved, yes.

Ms. MOLINARI. I guess--and these are obviously very complex questions that we all have to deal with, in your testimony, in your responses to questions, you talk consistently about negotiations and consultations between Amtrak and their employees. I guess part of what we are trying to resolve is that those negotiations and consultations are happening under the auspices of Federal statutes, not that Amtrak and their employees don't have a right to negotiate and make those consultations on their own.

Mr. LAWLER. Just as an example, take the transit MBTA, the commuter service in Boston. Amtrak operates that commuter service under contract. There are no C2, so-called labor protection provisions, that apply there because they have been--something else has been negotiated. So it is not a question of the Federal law requiring it. The Federal law doesn't require it if the employees and Amtrak sit down and negotiate something different. The same thing is true of the so-called 30-mile rule. It doesn't exist because Amtrak and its employees have negotiated something very different. And they are perfectly free to do that and they have.

Ms. MOLINARI. Then isn't the bottom line--then why in reauthorization would I argue we should keep that in Federal statute?

Mr. LAWLER. I think, first, you don't want it to be misinterpreted. Amtrak and its employees can sit down and negotiate these things as they have in the past, as they will undoubtedly continue to do in the future, that is the way it ought to go. The Federal statute doesn't prohibit someone from sitting down and negotiating about these things.

Mr. MICA. What is ironic about this is it looks like over the years you all have created a number of artificial statutory mandates to prop up sort of a dying system. And now they are using those mandates--for example, what they are doing here, there is not much cost here as far as terminating 5,000 people because what they are doing is going back to the statute and saying that if you limit the frequency and don't cut the service then you don't have to pay this compensation.

So, I think that your folks are going to have to come up--you want it both ways and you are getting killed by the rule--these statutory mandates you have imposed on Amtrak, if you had the list of the statutory mandates like we have here, have you come forward and said what can we do to revise these that can revitalize and keep as many people employed as possible?

Mr. LAWLER. I am not quite sure what you are referring to.

Mr. MICA. The different things. The different labor constraints, all of the things that have been mentioned as far as subsidization of the local transit systems, DavisBacon requirements, restrictions on contracting work to outside firms, things of that sort.

Mr. LAWLER. I would just again to repeat--

Mr. MICA. You have no positive suggestions in how we amend those things to keep you all alive?

Mr. LAWLER. With all due respect, I think we have a very positive suggestion.

Mr. LAWLER. No, if there are changes necessary and Amtrak management believes the changes are necessary in those things, they should sit down as they have suggested and as labor has responded to and say, let's work these things out.

Mr. MICA. But the thing is here, you have Members of Congress, and you have a different arrangement of Members of Congress. We, the new Majority, have inherited a disaster. And all these mandatory statutory requirements, which are actually being used now to kill you and you are coming to us for relief because they are taking the exception, which is you just cut the frequency of service, and then we can shaft them so they don't get paid so we will be running one train and we will throw those folks overboard, but don't you see this is a dying system and a sick system that needs some major surgery, not just tinkering around the edges and you are not coming forward with anything positive to save it either from this mandatory statutory aspect or from an operational standpoint.

Mr. LAWLER. Well, I guess I just don't know how to respond to that. We have indicated to the extent that we can, we are perfectly willing to sit down and negotiate with Amtrak about how to improve the system. And I don't know what more anyone can suggest.

Mr. MICA. You need to come to us with some concessions that can be made in this legislative arena on the mandatory statutory things. This is what we deal with. And you know, I think push has come to shove here, or you are going to see these tools that you have set in place further used against you. Thank you.

Ms. MOLINARI. I think that your point and your offer is well taken, Mr. Lawler, in terms of sitting down with Amtrak and negotiating. And I guess clearly most of us would rather just have it function that way.

How would you now--counsel has just reminded me that when Conrail had itself change over in the early 1980s, the lifetime salary protection, a solution was negotiated by setting a specific deadline for labor and management to arrive at a new agreement. Could you see this as something that you all would be willing to do, absent Federal statute or until we reauthorize Federal statute?

Mr. LAWLER. I obviously would have to check with my--the members of START to get you an answer to that. There are several--and, frankly, I don't recall off the top of my head when different contracts expire and when negotiations are. Some of those, I think, are under way, you know, on a today basis. There are others which are not. And if there was some need to change those others, I am sure that people would be willing to talk about sitting down with Amtrak. But it isn't something that the employees can respond to without management saying we need a change in X.

Now Mr. Downs has suggested the areas that he would like to sit down and talk about and we have responded to those and I am not quite sure what more than that we can do.

Ms. MOLINARI. I appreciate that. We will be following that and we look for your input as we move towards reauthorization to see how much flexibility we can give everybody to improve and continue the system. We thank you very much for your testimony.

Mr. MICA. Madam Chairwoman, I would like the record to be left open and also the opportunity to ask Mr. Lawler and his group some specific questions about reforms like lifting the ban on contracting out, Amtrak work revising statutory cost formulas, about the users in the Northeast Corridor eliminating the statutory directive that Amtrak must operate a so-called basic system of routes unless excused, and repealing or capping damage awards under the FELA, and there may be some others to get their response for the record to see, you know, where they think we should make these changes.

Mr. LAWLER. Be happy to respond to those.

Ms. MOLINARI. We will keep the record open for that. Thank you, Mr. Lawler.

[The information requested not received at the time of publishing.]

Ms. MOLINARI. And once again, in a return appearance before this committee, Mr. Thomas Downs, Chairman and President of Amtrak. Thank you, Mr. Downs, and welcome.

TESTIMONY OF THOMAS M. DOWNS, CHAIRMAN AND PRESIDENT, AMTRAK, ACCOMPANIED BY TIM GILLESPIE, VICE PRESIDENT, GOVERNMENT AND PUBLIC AFFAIRS

Mr. DOWNS. Thank you, Madam Chair. It is good to be back.

Someone just handed this to me as I was coming in the door, and it is obviously from--I thought this would be appropriate to open this. This is a letter from what is apparently a very young girl from Lakeland Shores, Minnesota. It says: Dear Honorable Downs--it is the first time I have been called honorable--please keep the trains going because we do not want to be late. Trains are good because they do not pollute. Trains keep cars from polluting. Thank you. A better opening statement than I could give.

I have a prepared statement, but I would ask in the interest of time that it be read into the record of the hearing.

Ms. MOLINARI. Without objection.

Mr. DOWNS. Thank you.

Just a brief opening statement. I want to restate something that I think needs to be said the right way. At Amtrak we are all afraid. We are all afraid for our future. Whether it is management, whether it is employees, even whether it is our customers, this is a very uncertain time.

People are even afraid to book trips for the summer because they are not sure we are going to be here. People are afraid to be a contractor for us, about whether or not we are going to be here long enough to live out the contract terms.

People are afraid at the union level about entering into longer term labor contracts, about whether or not we are going to be here or the contract terms themselves will be modified.

So it is a time of great uncertainty for us all. And we are looking forward to a full discussion about a number of these issues. And in that light I would like to put forth a couple of things, at least in our perspective, about why we are raising some of these issues.

Our business plan does assume a very aggressive and comprehensive strategy requiring either collective bargaining or statutory changes in our way of doing business. Forty-five percent of the bottom line improvement from our base forecasts comes from revenue overhead elimination and productivity enhancments. The remaining 55 percent of our multiyear financial improvement comes from route and service adjustments.

And one of our frustrations is ensuring everyone has a complete understanding about why we did make the route and service adjustments on frequency rather than on massive route truncations. Mercer management's analysis of the network, the same analysis they have done in Europe and South America and Asia for countries, showed us clearly something that is counterintuitive. We assumed that we would be making large scale cuts in routes themselves. They showed that the maximum return was on frequency reductions because of revenue retention, what they call revenue ''claw-back.'' That revenue which is retained when you take a service from 7 days a week to three or four days a week. That revenue retention, as well as the cost reductions that come with it, make it the most logical next step in terms of restructuring Amtrak.

Mercer Management pointed out that if we make the maximum change in frequency in this system, the next step is not individual route eliminations, it is taking the entire system back to the Northeast Corridor. That is the next step to get any significant change in economic performance beyond the changes that we are taking now.

We are taking $435 million worth of costs out of the system, 5,600 employees, the largest attempt at restructuring and reconfiguring Amtrak in its history, and we are hopeful that the outcome is that we do retain a substantial amount of revenue. But the jury is still out. We need to drive as many of the costs that are unnecessary to provide this service out of Amtrak as possible, and just so much of that, as I said earlier, can be obtained by Amtrak itself.

There are costs that are unrelated to the operation of our trains that Congress has imposed and only Congress can remove. We are a corporation-operated rail passenger service, by law essentially for the public interest. If the Congress wants to legislatively change that mandate, it has the power to. But as long as that is Amtrak's explicit purpose, it is the Congress' responsibility to help Amtrak be the most cost-effective and efficient system possible.

One of the things that has been most apparent to me in this first round of service cuts is that States want to make these choices for themselves about State transportation patterns, whether it is Minnesota, whether it is Wisconsin, whether it is Michigan or Vermont or California, where there have been significant changes proposed, the States want to be able to make those choices themselves.

The frustration is the limitation on not being able to use any Federal form of assistance they receive for that purpose. That impediment is probably our biggest barrier to having State partners, and not the revision in the 403(b) program, but the lack of flexibility and lack of resources the States feel.

In spite of that, we have recently concluded negotiations with two States about restoration of some level of service, Wisconsin and Missouri. Both those States have agreed to extend to the end of their fiscal year a level of service, not full service, with their own funds, general funds of their States, which we think is good news. It will allow them enough time to have their legislatures authorize further expansion of service in those States.

But the Governors I have talked to, five of them so far, have told me they still can't understand why they don't have the flexibility to make some of those choices with Federal transportation dollars themselves.

Second, it has been pointed out we are all over the map in terms of our State relationships with 403(b). Right now we estimate that our costs in the current structure of providing 403(b) service to the States, is $82 million a year. That is $82 million of where our Federal operating subsidy is going. That cost will eventually exceed $100 million.

We have some States that are in an old formula and some States that are under the new formula and some States that are in a total cost formula. We are meeting with all the affected States, their State rail officials starting tomorrow. They all wanted to know if it was on Valentine's Day for a reason, and we assured them that it probably wasn't.

They know that this is a strained relationship. And we are going to probably get criticism about how we handled this last round of service reductions.

I believe that it is time to address straightforwardly in partnership with the States what the States think is a proper relationship with Amtrak under the 403(b) program. They are coming with ideas. I hope we have the ability to bring those ideas back to you quickly.

Excess railroad retirement. I hear a lot that it is a cost that has to be borne. My problem is I cannot take that cost to a State who wants to contract for service as a legitimate cost. They say it is not acceptable for them to pay that. I hear it now described as, quote, ''a subsidy to Amtrak,'' as if it was something we chose. If there is a way of dealing with the railroad retirement it has to be as it was in the past, an authorization to the Federal Railroad Administration to pay those excess charges in an appropriation to the Federal Railroad Administration. It is now a part of our general appropriation and is lumped as part of our subsidy and it means that we have to bear that burden about getting to, quote, zero in our operating subsidy by the end of this decade including that. And I think that is an unfair test of Amtrak.

Collective bargaining. I have the deepest respect for the positions that Greg and the unions are advocating regarding the ability to have labor and management negotiate together on our contract provisions. There is one issue, though, that is at the heart of this, and that is whether or not, under current law, even in good faith, bargaining between labor and management, with the statutory provisions in law mandating these benefits, whether even after an agreement with a union an individual member of that union could not sue for standing in abrogation of his rights by this contract.

There is some clear law about the limits of collective bargaining in the face of a Federal statute mandating a certain level of benefits and whether or not those benefits can be reduced or bargained. In the past, rail labor has negotiated lower payment rates with freight railroads regardless of the New York Dock. We have not had any serious negotiation about those payment rates with Amtrak, but they should take place. They should take place in an environment where it is possible that these agreements are actually computable and not subject to a court review about whether or not an individual's rights were abrogated by the negotiation.

Mr. Lawler is right about the current round of the furloughs or layoffs. The substantial majority of them are due to frequency adjustments. The current C2 full 100 percent liability for implementing our strategic plan is estimated over, the life of the payment, at $200 million. In the past we have not paid the full cost because not all employees are eligible--it is time-based, whereby you earn a year of protection per year of service. Some employees affected, because of seniority, don't have full labor protection and that is why there is a smaller number that we are booking, and, in essence, we are saying that the number probably ought to be about $79 million worth of cost for C2.

I would only respectfully disagree with Mr. Lawler's point about the 30-mile rule. In the agreement that is inscribed in law, it says that by any transaction, which is a change in work, that is contemplated by the corporation after an initial assumption of functions which would result in the transfer of work and/or positions across seniority districts or which requires an employee to accept employment with the corporation requiring a change in his place of residence, that is, employment at a point in excess of 30 miles from the employee's place of residence, is the way that the current agreement inscribed in Federal statute reads about the 30-mile rule.

I think the unions have made it clear to us that they are willing to negotiate what they think are reasonable changes in our relationship in the Northeast Corridor to protect the jobs of their members. We want that. I think they want that.

It is, though, incumbent on us to recognize that the statutory limitations in doing that in good faith are an impediment to both parties. I am not advocating that this Congress intervene itself into this relationship and make the decisions arbitrarily by statute. In some cases that is how we got into this fix in the first place.

I am definitely advocating that the Congress allow us to negotiate, in good faith, agreement modifications that can be fully computed. And I am not sure that under some of the current law that we can get there.

We have issues that we are attempting to negotiate around the size of a crew, composite mechanics in our shops that we have some degree of optimism about. But those negotiations only in the initial stages.

The issue around the proportionate charge on the Northeast Corridor is a real one. Those are real costs. We are subsidizing commuters, by an act of Congress, in the Northeast Corridor. I think that is unfair and there needs to be a negotiation that takes place with the States, but at the same time I would support giving those States the flexibility to use some of their transportation funds to defer those costs. It would be unfair to them to simply dump those costs on them without giving them some degree of flexibility.

I am advocating a dedicated fund, that doesn't necessarily have to be a trust fund. We asked for it last year, a dedicated shell to put some proceeds of Amtrak revenue stream into that would give us a form of contract authority, that would give us our own account, so to speak.

Tort reform. As Mr. Harper said, we now have on our books $140 million worth of potential tort liability, and a substantial part of that is potential punitive damages relating from railroad accidents on freight railroads.

There is nothing that stands more in our way of having an agreement with the freight railroads about our future on the operating agreements than tort liability. They feel they bet their railroad every time there is a passenger train accident because of the potentials of punitive damages. I think it is incumbent upon us and the Congress to find a solution to that.

There are several others on this list of legislative priorities that I would be glad to respond to. But I want to mention one in particular. We are having a cash flow problem this year. It goes without saying that we may run out of cash in June, given our restructuring, the cost of that, and the financial position we're currently in.

As I understand it, since we are without authorization right now, it is possible to draw our full year operating grant. I think the inability to draw down our full operating grant, at the brginning of the fiscal year is silly, from a risk standpoint regarding cash flow. With the cooperation of the Administration and the Congress, we could receive that ability. It would not change our CBO scoring an iota. We are scored 100 percent for operating grants this year. It would not change anything in our budget. It would not change anything in our appropriation. It would simply be a matter of accommodation between the Congress and the administration about drawing our operating grant and it would help us a significant amount.

Ms. MOLINARI. Mr. Downs, two quick questions before I open it up. Is it your impression relative to your last statement that the Federal railroad administrator would go along with that?

Mr. DOWNS. I think there is a lot of language going back and forth about this between the administrator--the DOT, OMB, CBO, about are we okay about this in terms of precedent. ''In essence, since we are naked without an authorization, what is the precedent? This is one of the many issues that is not really superfluous to our existing financial situation, and ought to be resolved quickly and with the right impetus between the executive branch and between the Congressional Budget Office. I hope we can get a quick resolution of this issue. And that is why I am publicly airing it.

Ms. MOLINARI. We will work with you on that.

Let me ask you one more question. In advocating--I have heard you say this a number of times--if you were still the MTA president, would you still be advocating the Governors being given the option of drawing down on the transit fund for Amtrak?

Mr. DOWNS. Where you stand is where you sit. It is a difficult issue because I recognize--

Ms. MOLINARI. Mr. Lipinski and I sit just about on both sides. That is why I am asking.

Mr. DOWNS. I recognize that the administration's request for transit operating assistance declined by a quarter of a billion dollars and that puts tremendous strains on transit. I do not want to be the life enemy of the American Public Transit Association or the transit providers, but I am fighting for life and death on a system that is unique. I am fighting for the flexibility for States to make some of those choices themselves. I believe that it belongs out there where people who are closer to the community can make better decisions. Yes, I believe that with all of my heart because it is where I am taking the business. Out of here, decentralize it. Out to the various regions of the country and down to each train line and each station so that people own it; own the decisions and own the product. I believe that and if we don't wind up with a choice that supports us in the States, the lines are going to die anyway. So, yes, I believe that it ultimately belongs out there. Even if they choose not to support us.

Ms. MOLINARI. I appreciate that. Mr. Mica.

Mr. MICA. A couple of points. First of all, I think you in your testimony referred to market-motivated action in reducing 5,600 employees. I guess the retirement compensation if you terminated routes would not have had any consideration?

Mr. DOWNS. We did not book that as a cost in our operating budget. We tried to make these decisions outside of the realm of labor protection and put those in transition cost requests in the budget and in our own budget.

Mr. MICA. If you had terminated those routes instead of reduced the service, you would still be obligated to that 6-year payment?

Mr. DOWNS. We are eliminating a number of routes. The Atlantic City line, Harrisburg service.

Mr. MICA. What is the estimate of the cost?

Mr. DOWNS. Two hundred million is 100 percent rail labor protection on this year's eliminations of service. That is 100 percent. We are--our experience has been closer to between 40 and 50 percent of----

Mr. MICA. What number of employees out of the 5,600 is that?

Mr. DOWNS. About--I understand it is less than 300, but it could be smaller than that.

Mr. MICA. Six to 700 employees is going to cost us a quarter of a billion dollars?

Mr. DOWNS. Yes, current loss 6-year full payment.

Mr. MICA. And the 5,000, actually are not subject to that because--so I guess we will have a slight increase. The last time it was--

Mr. DOWNS. But our total C2 payment over the life of the company is about $32 to $33 million. It is because in a number of cases, we have had people who have not had full legal rights to it because you vest in it given the number of years of service. Also other people took other jobs.

Mr. MICA. Do you have the figures or could you supply us with the figures--we talked about this last time--of what your obligations are on sort of a continuum over the years? I would like to see that figure.

[The information contained in the letter follows:]

[Insert here.]

Mr. DOWNS. For instance, this year--

Mr. MICA. Both for the 5,000 and then for the residual 20,000. I would be curious to see what kind of obligation is there. Because I have seen varying estimates of the obligation. Again, anywhere from $3 to $6 billion.

Mr. DOWNS. That is with total termination of Amtrak.

Mr. MICA. Then the question on the subsidy in the Northeast Corridor. Now what is the total cost of maintenance in the Northeast Corridor, ball park figure? This 200 million figure is not an annualized figure, is it?

Mr. DOWNS. That is not depreciation. That is strictly current operating costs.

Mr. MICA. How much is coming in from the States and the local transit authorities? Again, the figure I got was about 1,100 trains a day in the Northeast Corridor. Maybe a thousand local transit--a thousand Amtrak and a couple dozen freight, is that a good--am I off base?

Mr. DOWNS. There is 1,100 basically commuter trains and Amtrak. Of the 1,100, 100 of them are Amtrak trains.

Mr. MICA. And you retain and own that asset, that corridor of the track and all?

Mr. DOWNS. Yes, between Washington and New York.

Mr. MICA. And with 10 percent of the ridership, just from a business standpoint you would be contributing 20 million a year towards that. But the Federal Government is subsidizing 200--$180 million, right?

Mr. DOWNS. Uh-huh.

Mr. MICA. How much are the freight lines paying in?

Mr. DOWNS. The majority freight user is Conrail. It is an incremental cost and I would have to get you that number. I don't have it with me.

Mr. MICA. If we developed a chart for the utilization of the track for these 1,124 users, is it possible to come back with some kind of a figure and show us what costs--I mean, what the distribution of costs would be? For example, if I wanted to prepare a bill and send it to Delaware transit, I don't know if there is a Delaware transit but to whoever and say this is past due, pay on demand, could we establish some formula for utilization of that asset?

Mr. DOWNS. We could do it on a train mile basis.

Mr. MICA. Could you get us some figures on that?

Mr. DOWNS. Yes.

[The information received follows:]

Answer: The total common costs between commuter rail and Amtrak (e.g., costs of operations and maintenance for the benefit of both commuter railroads and Amtrak--excluding freight) are estimated to be $240.7 million (FY95). Under current agreements, Amtrak would pay $179.8 million, or 75 percent, of these common costs, while commuter railroads would pay $60.9 million. Some of the current agreements are based on avoidable costs principles, but not all, and each contract is unique. If Amtrak were to abandon all agreements and pursue a train mile allocation process, a very rough estimate is that commuter railroads would increase their payments from $60.9 million to $86.8 million.

These are extremely rough numbers, and are only provided to indicate the relative differences between allocation methods. In reality, each commuter railroad's cost share would differ from the above because the costs for each link in the rail network are different and usage on each link is different. The calculation above represents a pro rata share of total costs along the corridor ignoring the detailed analysis of costs and usage at the link level.
[Charts follow:]

[Insert here.]

Mr. MICA. So if we do get out of this business of subsidization, you are cutting $540 million you said--

Mr. DOWNS. Four hundred thirty-five.

Mr. MICA. I am sorry; 435. Is some of that in recalculation of the figures that I just talked about? So we have the potential of another 180 million hanging out there?

Mr. DOWNS. Not without a change in law.

Mr. MICA. I mean if we changed the law. This is another source to bring this thing into some operating balance?

Mr. DOWNS. Yes, but as the Chair indicated, in a number of those cases where you stand is where you sit. And the presumption equity on the part of the State is not clear. They would dispute their, quote, ''share.''

Mr. MICA. Is there, in fact, further subsidization rather just the utilization of the corridor, local transit groups? I saw a transit subsidy figure--a Federal transit subsidy to the local and State groups? You don't know what that figure is, do you?

Mr. DOWNS. I think current Federal operating assistance levels are--

Mr. MICA. Is it 1.3 billion?

Mr. DOWNS. Operating subsidies like 650 million.

Ms. MOLINARI. Two point nine billion total.

Mr. DOWNS. That is Titles III and IX, capital and operating.

Mr. MICA. That would be another interesting figure to see how much we are subsidizing that proportionately. You could do it several ways on a ridership basis or mile basis or things of that sort.

Hello, Mr. Downs once again. Don't you think that if we were to eliminate any of the Federal labor law protections in this overall agreement in a reauthorization that we would be hurting, putting at a disadvantage the labor unions that are involved with Amtrak? You are saying that management and labor is willing to sit down and negotiate. Other people have said the same thing. Some people advocate keeping the labor provisions in. You would like to see all of them removed out of the Federal statutes.

It seems to me, though, that if Congress were to do so at this particular time, we would be giving a decided edge to management in labor negotiations. Something that has been in effect for as many years as those have been, for us to move to remove them, and I say it seems to me that you are putting--you are asking us to put the working men and women of Amtrak at a very compromised position. Do you have an comments on my thoughts there?

Mr. DOWNS. I would disagree with that. I respect those rights as well. Those rights, though, are not necessarily even negotiable by their unions if there is a property right of the individual in the Federal law itself. If, in other words, those unions did negotiate a change in C2 labor protection and an individual member sued for the abrogation of his property rights, none of the Members in this committee or this Congress would be happy with that outcome. It meant we all went through this and we could not enforce it. I do not think that there is another place in the railroad industry where these kinds of limitations on the collective bargaining process are accepted as legitimate.

If the unions themselves have negotiated New York Dock with freight railroads successfully for their members, we think that they can do that with Amtrak. The question, though, about the enforceability of that agreement is what bothers me about the limitations that the law imposes even on organized labor in making those agreements.

Mr. LIPINSKI. If we were able to write a new protection in reauthorization legislation that would preclude an individual from doing something like that, and it would be something that would measure up to your standards and measure up to the standards of Congress as far as it being accepted as law and not being able to be appealed in a court of law, would that make you feel better about collective bargaining with your labor unions underneath the standing Federal statutes?

Mr. DOWNS. I think that would have the same effect as doing away with the mandatories in the legislation and I am not sure about the distinction between the two.

Mr. LIPINSKI. So we couldn't aid and assist you by attempting to do something like that?

Mr. DOWNS. I think it is the same thing. It is the same outcome.

Mr. LIPINSKI. Okay. Unfortunately, we cannot come to a common ground but we shall move on to something else.

You talk about the States wanting to use their highway or their transit money.

Mr. DOWNS. Transportation money.

Mr. LIPINSKI. Transportation money. Now Wisconsin has just done so and Missouri has just done so; correct?

Mr. LIPINSKI. Both cases were State general fund money but they would like to use the money that they receive out of the highway trust fund; correct?

Mr. DOWNS. The States have said uniformly they would prefer to have some flexibility about Federal transportation funds. Right now they cannot legally make that decision. And every Governor I have talked to wonders why they can't.

Mr. LIPINSKI. Well, because what we have authorized is for them to use it for highways or for mass transit. And mass transit does not include Amtrak at the present time.

Mr. DOWNS. It depends on the State that you are in.

Mr. LIPINSKI. Yes. Now, can you suggest some way that we could accumulate additional revenue for the highway trust fund out of the railroad industry to help these States utilize their Federal trust fund money to subsidize Amtrak?

Mr. DOWNS. The railroads, they vary. Some say that they receive no subsidy and have to compete with a heavily subsidized industry on the highway side, and are becoming much more successful about it--competing with the other mode--about long distance trucking.

I am not sure if it is fair to categorize the highway industry as subsidized solely out of a user fee. Nor are we subsidized solely out of a user fee, and neither is aviation.

There are so many cross subsidies in transportation that industries that are not subsidized indirectly are at a distinct disadvantage, like Amtrak. Because our subsidy is so straight, it is so on the line, everything about it, capital and operating as a general fund appropriation, it puts us at a disadvantage both economically and from a political and visibility standpoint.

Mr. LIPINSKI. You are meeting in the very near future, I understand, with a number of States pertaining to this particular problem.

Mr. DOWNS. Tomorrow.

Mr. LIPINSKI. That is tomorrow?

Mr. DOWNS. Yes.

Mr. LIPINSKI. Do you have any specific ideas or plans to offer to them in regard to how we may be able to continue Amtrak service with their help?

Mr. DOWNS. Several States don't want a contract like our 403(b) program anymore. They want a straight contract as if we were a vendor. They don't want anything other than very explicit costs and terms. They will contract for it and that is the end of it. They don't want long-term contracts. Many States feel that we are an undependable partner. They don't want to depend on us for passenger rail service and that is a very strong concern that we have about being a dependable partner for those States. And I think that this is too important to subject it to a couple of years' worth of uncertainty. So I don't know how the outcome of this set of discussions with the States is going to go.

Mr. LIPINSKI. My time is up for now but, Madam Chairwoman, I would like to have a few more questions after you come back to me.

Ms. MOLINARI. I just have one, I guess. The question is--I mean, as we sit here and grapple with the changes to go back to our colleagues to keep funding and, two, to, inspire some confidence that this is a system that will survive and survive well and that we will be able to make some changes so that neither management nor labor nor ridership need to face the kind of crisis that we are all living through. Yet, we come here and you tell us--and I know that this is what the Mercer study said--that what you just did in December is the bottom line. That that is as far as you can go in saving this system money. That there is not a route that can nor should be eliminated in these United States.

Mr. DOWNS. No, I think there are assumptions about interconnectivity. You have to understand that almost every long distance route in America is going from 7 days a week to 3 to 4 days a week. There is no network or interconnectivity revenue left in the system. And I have several models that show that in another countries.

The answer is yes, there is a possibility of pulling other pieces out of the system. Would the system survive? I think the odds go up that it would not, and that it is a death spiral.

Ms. MOLINARI. That it would not survive at all or as a nationwide system? I mean, do we--is it worth just even exploring becoming regional clusters?

Mr. DOWNS. Regional clusters with what kind of State choice? There are no regional clusters without the States being able to make choices. If you think about the regional alliance that provides funding, it is only 20 or so States.

The option about whether or not there is any national consensus that could support capital funding requirements, the excess railroad retirement costs for Amtrak. I would not be an optimist about it. I think that regional clusters has to be a State choice, and some kind of funding mechanism needs to be in place that allows them to make those choices. At that point I think the erosion of the support base in this Congress would be to an extent that there would not be enough will or jurisdiction support.

Ms. MOLINARI. I am not negating the importance of getting the States and municipalities involved but should they decide that they could not afford or choose not to afford the subsidization of Amtrak?

Mr. DOWNS. Then the service goes away.

Ms. MOLINARI. Completely? As opposed to cutbacks?

Mr. DOWNS. If the national government doesn't pay for it and the customers don't pay for it and the States and regions don't pay for it--no pay no go-- the railroad doesn't go there anymore.

Ms. MOLINARI. When you had said that you have taken the system as far as it can go, before you approach the State and municipalities to find out just how much they want to--

Mr. DOWNS. The economics--the--we pushed it economically as far as the system could go with frequency reductions and route eliminations and truncations. We took a number of actions that truncated lines and eliminated a number of services as well. We pushed those as far as we could economically. With the hope of only losing about $65 million--we are taking $435 million of cost out and hoping to lose only $65 million worth of revenue. If the revenue retention figure turned out to be overly optimistic, our number will be much higher and this round will have failed--this round of service reductions have failed in their purpose.

Ms. MOLINARI. What kind of criteria do you use when you are meeting with the States in terms of how much they have to give in when you are dealing with a system that loses less compared to a system that loses more?

Mr. DOWNS. They have to pay the whole cost.

Ms. MOLINARI. Of capital?

Mr. DOWNS. Of operating the segment. They pay everything. With the exception of railroad retirement and--excess charges on railroad retirement, which they refuse to accept, and I am not sure if we put anything else in but they cover all of our GM2 costs, all of our legitimate long-term operating costs. They have to pay 100 percent of those or we cannot provide the service.

Ms. MOLINARI. And that is the discussion that is going to take place tomorrow?

Mr. DOWNS. That is a discussion that has taken place with the States that have already agreed on the extension of service, Wisconsin and Missouri. We are close in Michigan and close in California. It is 100 percent of the cost of running that system.

Ms. MOLINARI. Mr. Lipinski.

Mr. LIPINSKI. Following up on these States here. You are saying that--let's get into Wisconsin, it is close to me, I relate better to Wisconsin. Wisconsin is going to subsidize the operation by $180 million; is that correct? Is that the figure?

Mr. DOWNS. One hundred fifty thousand to the end of the State fiscal year.

Mr. LIPINSKI. One hundred fifty thousand dollars on top of what they were already providing, which was about 4 million.

Mr. DOWNS. I don't have the base on Wisconsin but I will be glad to provide it. But the agreement was to provide another $150,000 to take this service, greatly reduced and with an increase in fares, to the end of the State fiscal year to allow the State legislature time to address the issues about service retention.

They went from 7.5 trains a day to four trains a day. They increased--and also increasing the fares and providing additional State subsidy to get to the first of July.

[The information received follows:]

Answer: The roundtrip fare between Chicago, Illinois and Milwaukee, Wisconsin, was increased on March 12, 1995, from $25.00 to $38.00. Together, Wisconsin and Illinois will contribute a total of $150,000 to preserve the service through July 1, 1995, which is the end of the States' fiscal years. Wisconsin is contributing $112,500 and Illinois is contributing $37,500. This contribution is in addition to the $455,000 the States were already contributing, under the 403(b) program, to run the service.

Mr. LIPINSKI. What was the fare and what is the fare? Do you know that?

Mr. DOWNS. I am sorry, Mr. Congressman. I understand it is about a 50 percent increase.

Mr. LIPINSKI. And how much longer does this give them the service?

Mr. DOWNS. Until the first of July.

Mr. LIPINSKI. First of July. Do you have any idea if everything else stayed the same as it was; you didn't receive any more money, you could not subsidize it anymore and there wasn't any changes in labor provisions or anything like that, do you know what it would cost them to keep this service for a whole year?

Mr. DOWNS. At the 7.5 trains a day with the existing fares? I believe--I would be guessing but I think the loss that we were experiencing on this was between $4 and $5 million a year.

Mr. GILLESPIE. It was closer to a million. I just got a number, it was $700,000; $700,000 that was being subsidized by the States of Illinois and Wisconsin and we agreed to make up that last 150,000 to get us through the end of this year.

Mr. LIPINSKI. Go ahead. You may confer privately. Push the mike away if you wish.

Mr. DOWNS. I am sorry; I don't have the answer for you. I will get it back for you.

Mr. LIPINSKI. I was passed a note saying that this fare was $17, so are you telling me that was doubled to $34?

Mr. DOWNS. No, I am saying it was approximately a 50 percent increase.

Mr. LIPINSKI. So you are up to $23, $24? Do you know if that is one way or round trip?

Mr. DOWNS. I am sorry, Mr. Lipinski, I don't know.

Mr. LIPINSKI. How about this one? I have been led to believe by certain people that if you had to shut down entirely that there is a provision that the employees would be able that go back to Conrail with their seniority with their salaries and there are supposedly a thousand employees that would be eligible for this benefit. Do you know anything about that?

Mr. DOWNS. It is called C1, and it is flowback. It is called in the railroad industry, it is called flowback. A number of railroads that were downsizing aggressively in the 1980s and early 1990s had employees who we hired at Amtrak. Because they were in furlough status with those railroads having been laid off or furloughed back, they have the ability to flow back to those railroads. We have some data on how many of those employees now have retention rights, and I couldn't tell you the numbers but they are primarily in the Northeast Corridor. There are some flowback employee rights on CSX and on Southern and on a couple of other railroads, Conrail, but I could give you the breakout by railroad.

Mr. LIPINSKI. I would like to have that, please.

Mr. DOWNS. Sure, be glad to. They are our most senior employees because they come with seniority and they came over early. They have usually 20 or more years on Amtrak, and given seniority bump rights, with the exception of route abandonments, would have job retention rights before almost any other employees at Amtrak.

Mr. LIPINSKI. One last question, I think. Do you have a number on how many employees or the percentage of employees on Amtrak are almost exclusively connected with the Northeast Corridor?

Mr. DOWNS. About half of our employment is in the Northeast Corridor. It is because we own and operate the corridor itself and have a large number of MFW, maintenance of way, employees in the corridor.

Mr. LIPINSKI. Thank you.

Ms. MOLINARI. Mr. Mica.

Mr. MICA. I am trying to find some ways to stem the bleeding. And I am wondering on some of these routes if it would not be cheaper to transport people by limousine with a driver than to subsidize some of the costs.

For example, it says in fiscal--this is intercity passenger rail and financial operating conditions threaten Amtrak's long-term viability--it says in fiscal year, this is another program--last year which financial data this is the 403(b) service. I guess this is demonstrative. It says Amtrak absorbed about $82 million in losses on section 403(b) services. That was 1993. What about 1994?

Mr. DOWNS. That is the program we just took the States through the ringer on. That is where we canceled all of our State services. That is the State partnership program where States can purchase rail service from us. That is where we just put them all through the ringer. That is why they are mad as hell and they are coming here to tell me that tomorrow. That is the program where we took the biggest single----

Mr. MICA. Was that only a couple of States? Two or three projects?

Mr. DOWNS. Wisconsin, Missouri, California, Michigan, Pennsylvania.

Mr. MICA. Again, in looking at trying to stem the bleeding, I notice that at least I have been informed that the only thing that--there is only one labor reform that you have possibly recommended; is that correct? You know there are a number of statutory--we have all these labor protection obligations and statutory provisions that you work under, but the only thing that I have any evidence of that you have recommended as far as a reform was the change, I guess, in the 30-mile provision; is that correct?

Mr. DOWNS. No, I asked for specifically the Congress to get out of the business of setting the maximums and minimums in C2 rail labor protection which includes the layoff protection, the 30-mile rule, and I asked for the ability to contract for services.

I had, I thought, made those clear that I needed the authority to negotiate--

What about what is left--now is seems, again just looking at it from a business standpoint, I see the Northeast Corridor--I see maybe Auto Train, and I see a couple of other pockets. I guess there is some--you also own an asset up to Philadelphia to somewhere.

Mr. DOWNS. Harrisburg.

Mr. MICA. And there is a proposal to give Milwaukee to Chicago, and I guess a Pennsylvania route back to local service providers.

But figure you ended up with, say, the minimum service that could be profitable, is that sort of the prospects we are looking at in the future?

Mr. DOWNS. We don't make a profit, nothing, at Amtrak. Not even Auto Train makes anywhere close to its costs. It is because of the cost of capital.

Mr. MICA. I mean, you don't, but those have the potential for sometime being at least revenue neutral. Auto Train one time made a profit.

Mr. DOWNS. Not without capital.

Mr. MICA. Again, assuming that you had capital investments in them. But what I am trying to say is what would be left to give service to that has a potential for being revenue positive? Of course, it is all promulgated on the basis of the statutory changes changing the--stemming the loss from some of these subsidies, direct and indirect.

And again getting things back into some balance. Can you envision a system that still retains long distance and rural service or just those corridors and services that I described?

Mr. DOWNS. I can easily envision long distance train service having a role in America, but it also involves partnerships with States that want to help support those services for a whole variety of reasons. For a lot of rural America where there is tourism, economic development, it is rural connectivity. But there is not the flexibility for the State to make those decisions.

I think there is a role for Amtrak in a national system. It is clear that a number of States value it very highly. And those that don't, the service will probably go away in those States.

Mr. MICA. Final question, is the loss--and I saw some of these studies here about allocation of costs, et cetera. Is the loss in the rural service areas, is that insurmountable? Because it appears that like, you know, 65 cents on a dollar, the Northeast Corridor is now paying in versus a lower figure on the long distance service.

Mr. DOWNS. Part of it is how much overhead we can take out and that overhead falls unevenly within the system. Oftentimes the more overhead we take out, the better the rural routes get. I believe that it is possible to have a very reasonable number for States to talk about in terms of supportive system, an operating system in their States in places like Montana and North Dakota where they are desperate for 7-day-a-week service and haven't figured out how to pay for it yet. My job is to make it as cheap a service, as possible, yet of the highest quality. And I hope the Congress will give them the flexibility of deciding how they want to pay for it.

We will call up Mr. Ross Capon while the stenographer changes his paper.

Mr. MICA [presiding]. Thank you. Mr. Ross Capon, we are going to hear from you now. And you are President of the National Association of Railroad Passengers. If you would go ahead with your testimony. Thank you.

Mr. CAPON. Thank you very much, Mr. Chairman. I ask that my full written statement be included in the record.

Mr. MICA. Without objection.

Mr. CAPON. I would like to make three major points and talk about the use of the trust funds, the nature of passenger railroading, and the tremendous importance of improving the cost-effectiveness of Amtrak.

With regard to Federal highway and aviation trust funds, and Mr. Burnley's comment that these were paid by highway users with the understanding that they would be spent on highways, our view is that we don't have highway users in this country, we have transportation users. Most of my members drive a car, and probably about 99.9 percent of them are opposed to mode-specific trust funds. If I ever flew from Washington to New York, which I don't anticipate doing, I would not think it would be good public policy for the ticket tax that I pay to be spent on further improvements to the airports, in a situation where rail would do the job better. And so we believe that ultimately, the solution to funding transportation in this country is going to depend on further moving away from mode-specific trust funds.

Secondly, with regard to the statement that passenger railroads are inherently unprofitable, I don't disagree with that, but I want to answer the next thought that might come to mind, which is that because they are not unprofitable they are not important. One advantage, if you want to look at it that way, of a railroad is that all of the costs show up on one balance sheet, and it is very easy to see what those costs are. And that has an impact on freight roads as well as passenger railroads.

I discussed this on page 5 of my statement and in the third bullet on page 2. The disadvantage is that while the costs are easy to show, the benefits, like greater energy efficiency--almost twice the energy efficiency of airlines--do not find their way onto the balance sheet.

So, we are in a difficult position, I guess, you would say with regard to perception, which may be 90 percent of the ball game. But the fact that passenger railroads require a subsidy is largely a testament to the honesty in accounting inherent in railroad technology.

Finally, I would like to under the tremendous importance of increasing the cost-effectiveness of the service as opposed to cutting any more of the service than what Amtrak is already doing.

The service is so skeletal already. I noticed that the appendix to Mr. Knappen's statement includes a list of places that don't have intercity bus service, but even that list understates the importance of Amtrak because there are many other places that do have intercity bus service but it goes in a different direction from what Amtrak does so that the effect on a given town losing Amtrak can be just as dramatic as if the town had no bus service.

There are three general items that I hope will get some attention in terms of how to improve Amtrak's cost effectiveness. Section IV of my statement goes into the whole cost-effectiveness opportunity issue in some detail: Commercial revenues, the fuel tax, and the issue of labor.

With respect to commercial revenues, I think that the General Accounting Office has been too bleak in outlining Amtrak's future. Amtrak has been through 3 horrendous years. In 1992, they had the nationwide rail strike and tremendous disruption of their service after the consent agreement with the Food and Drug Administration, that meant a lot of trains running late and originating late or running with reduced capacity.

In 1993, the Midwest floods had a devastating impact on Amtrak. In 1994, you had the safety/public relations disaster and also the negative impact on Amtrak revenues of banning smoking. I think a lot of people who have looked at Amtrak, including the GAO, are just convinced there is something else out there in 1995 that will devastate the revenues. I don't think there is as long as Amtrak is aggressive with advertising.

With respect to the fuel tax, we think there is no public policy purpose served by Amtrak having to pay the fuel tax. It should either be repealed or directed to a rail passenger trust fund. I notice the airlines, which had been exempt for 2 years from the fuel tax but are scheduled to start paying it on October 1, are launching an effort to escape that tax. I hope they don't succeed, but if they do, maybe that legislation is the vehicle that could exempt Amtrak.

Finally, with regard to the labor issue, I think that the general principle that we see as appropriate is that labor should not be penalized for working on a form of transportation against which public policy has discriminated but on the other hand Federal funding shouldn't be used to insulate Amtrak workers from the marketplace realities that workers in other industries, especially aviation, face. In that regard, I think it is important to note that Southwest Airlines, the only consistently profitable airline in the country, pays very good wages, very competitive, and the big difference with Amtrak is the relative lack of work rules.

Mr. Capon, you mention in your testimony that Amtrak's demise would likely mean the permanent loss of access to the tracks of freight railroads for passenger-carrying purposes. Could you explain what you mean by that?

Mr. CAPON. Yes, when Amtrak was first established when the law was passed in 1970, the deal was that the private railroads would be relieved of the deficits that they were incurring for operating intercity rail passenger service and that they would allow Amtrak to operate on their rails at what is called incremental costs. I guess the simplest way to explain incremental costs is that those are the costs that would not exist if the passenger train didn't exist. They are not paying a share of the salary of the freight railroad's CEO.

If there is one thing that is pretty clear to me, it is that the freight railroads would resist strongly any attempt by Congress to pass on to any provider, other than Amtrak, the right to operate over those tracks for incremental costs. So what I am saying is that it is my impression that, as a practical matter, if Amtrak goes away, the right to operate passenger trains at incremental costs will also go away.

You stated in your--some of your testimony here, I guess maybe a consideration, you say one of the problems is that Amtrak currently faces is that it must deal with 13 unions and 26 bargaining units. And I think you pointed out that in Canada they recently required all the railroad shop workers to elect a single union.

Would you advocate something like this? Are you advocating that they deal with one union, that there be some Federal requirement to consolidate the bargaining folks?

Mr. CAPON. If further study indicates that the multiplicity of unions is an impediment to getting the kind of progress that we need on productivity, we would support that, yes.

Mr. MICA. Let me see, other question that I had related to a service reduction option as an alternative to outright discontinuance of service. I think you had mentioned that. I think the mechanism that was chosen by Amtrak was to--I think they are going to only discontinue three routes and they chose the alternative method. They said it was market driven; out of the 5,600 employees they are going to abandon, only 600 come under this discontinuance which will obligate them to a quarter of a billion dollars in payments.

What would you envision there? Because if you discontinue the routes, you are going to find yourself with a heck of a liability.

Mr. CAPON. It is my understanding that the quarter of a billion that Mr. Downs referred to--that assumes 100 percent payment. In other words, in actual practice many of the employees will get other jobs or not take the full payment.

Also, Amtrak, they are eliminating more than three routes but they have chosen a definitional approach where, for example, St. Louis to Kansas City is one of the routes they are eliminating but because the train goes Kansas City to Chicago, they call Kansas City-St. Louis a segment elimination.

But the general answer to your question is that the Mercer, the Amtrak consultant, found that because so much of the costs were involved in the operation of the train, as opposed to the operation of the fixed facilities like stations, that in fact they do get rid of a lot of costs when they reduce frequency.

In other words, outside the Northeast Corridor and Michigan where Amtrak owns tracks, Amtrak is analogous to a bus company uses someone else's infrastructure, incurring costs largely a function of train-miles. So I think it is credible what Mr. Downs says about being able to protect a large part of the route mileage.

As a longtime observer of the system, I would agree with Senator Lott, who said, ''No meaningful national system, No system.''I share Senator Lott's concern that, Amtrak's Northeast if bias gets increased any further, the national willingness to support Amtrak becomes that much more tenuous.

Mr. MICA. Well, there are two other things. One is indirect and direct subsidization that is lacking and provided by the Federal Government but lacking from the State governments. Your comments on addressing this. And then the question of subsidization. Rail subsidization, as I understand, is about $55 a passenger, or something like that, as opposed to just a matter of a few bucks or less to bus companies. Of course, we don't take in all--in that figure, probably all of the subsidization of highways and roads over which they travel.

But how would you address distributing the true costs to the State and to the ridership? And what alternative?

Mr. CAPON. Well, I think, that with regard to the short distance routes, Amtrak has started down a path where they have already shown that two States are willing to increase their payments to save the service. If that is going to work on a long-term basis, I would refer to my opening comments about the need for greater flexibility in the use of Federal transportation funds.

With regard to the long distance routes, I am very pessimistic about the ability of States to get together because someone is always going to be served at night. You cannot allocate costs on a train-mile basis because someone is going to argue that the trains in the middle of the night are scheduled for the convenience of Chicago and Seattle and therefore they cannot defend that kind of payment.

So I think on the long distance side, it may be that Montana will come up with some money to increase the frequency. I don't know. But I think the main thing that one can expect on the long distance routes in terms of State contribution is for station facilities. We have already seen some progress. There are a number of intermodal terminals in the country. Spokane, Washington, is one of the newer ones. States have shown a willingness to support a facility that stays in that State. And it is not going to move.

But I would just underline your comment about the noncomparability of the $55, or whatever it was, and the 3 cents, because somebody who pays a flat fee per gallon of gasoline purchased to use a public highway is in a much better position than someone who owns a railroad. If a bridge goes out on the Northeast Corridor or if there is a major derailment, that railroad, Amtrak, is in the tank for fixing that bridge. If a bridge that Greyhound uses goes out of whack, they are just going to pay the gasoline tax for the detour which will cover the additional costs they impose for the detour; no surcharge for fixing that bridge.

Mr. MICA. Mr. Lipinski.

Mr. LIPINSKI. Mr. Capon, Mr. Harper earlier mentioned that the freight railroads capitalized Amtrak with $200 million and described these as very harsh terms. He also mentioned that his members were losing $1.7 billion on passenger service at the time. Wasn't paying $200 million to be relieved of a 1.7 billion annual liability a good deal for his members?

Mr. CAPON. I don't think it was a tremendous deal because I think the size of the deficit that they were incurring before the Amtrak law was passed was partly their own making. I do not minimize the tremendous public policy implications of all the investment and taxation policies that went against the passenger train. But there were all kinds of efficiencies that could have been implemented that were not, so that to some extent the railroads bear responsibility for the magnitude of that deficit.

And since you mentioned the freight railroads, I wanted to note the statement that they made earlier, that they don't get any benefit out of Amtrak. I think that there are at least three benefits that they get out of Amtrak. One is that Amtrak has been a leader in the industry in developing awareness of grade crossing safety. I think the freight railroads have greatly benefited from Amtrak's visibility and presence in getting States to take that issue seriously.

Second, I think that the passenger trains that Amtrak operates are the public's window on the industry that they otherwise never hear about unless a freight train derails and blows up a town. It is a positive side of railroad public relations.

And finally, I think one of the realities is that Amtrak is a training ground for freight employees. Amtrak is competing in the marketplace with freight railroads and commuter railroads which in many cases pay more than Amtrak does. And to the extent that that gap increases, Amtrak winds up as the training ground where after Amtrak trains workers as soon as a freight or commuter is hiring, they go over and work over there. I was told that virtually every Amtrak employee in Chicago has a resume over at Metro, which runs Chicago's commuter trains, because the workers want to get over there, Metro's pay is better.

Mr. LIPINSKI. I have heard the same thing and I think it is true. Thank you very much, Mr. Capon.

Mr. KNAPPEN. Thank you, Mr. Chairman. Mr. Chairman, and Mr. Lipinski, I will be brief and summarize my written testimony.

Basically what I would like to do is make four points. I would like to briefly talk about the existing service transportation network, both bus and rail. So, Mr. Chairman, you have, an answer to the question of what are the benefits in terms of surface transportation versus the costs of the subsidy, which when you asked the question struck me as really sort of at the heart of this hearing.

Second, specifically what we are doing about the April 1 service cutbacks; third, what we are doing with Amtrak in terms of working together to provide a better, more integrated surface transportation system. And finally, to complain about Amtrak's subsidized bus service, which we believe is entirely inappropriate. But three out of four isn't bad.

The first issue in terms of the existing surface transportation network, the facts are that intercity buses provide service to roughly 5,000 communities nationwide. Roughly half of that is provided by Greyhound. The other half is provided by literally dozens of regional bus companies that operate around the country.

This compares with 560 Amtrak rail service points. If the entire Amtrak system were shut down, there would be exactly 56 communities in the country that would be left without any intercity public surface transportation. I have listed those in my testimony by State. There are a few in Illinois. There are none in Florida.

Mr. Capon is correct that Greyhound doesn't necessarily go the same way Amtrak goes in terms of service to other communities. But for the most part, the vast majority of the majority routes in the Amtrak system are duplicated by bus service. And what is also true about the 56 communities that are on that list, the vast majority of those are small communities that are closer to a town with bus service than we are to Dulles Airport as we sit here.

Second, with regard to the discontinuances that have been announced, the April 1 discontinuances specifically, Greyhound is in the process of looking at each one of those on a route-by-route basis, studying the demographics, service frequencies, and making specific decisions on each route with regard to where we can add service where a service need exists.

This is not hard to do because we serve virtually all of those routes. And if you look at Attachment 3 in our testimony, it shows that over the last 13 years, and I took it since bus deregulation in 1982, which is when it became easy to get off of routes--the fact is that we have dropped an awful lot of service, as we have gone head to head with Amtrak.

There are a number of reasons for that but one is unquestionably the disparities in the subsidies of the two modes of transportation. The Amtrak subsidy is in the neighborhood of $50 per passenger, while it is 5 cents per passenger on Greyhound. That is a partial subsidy from the Federal fuel tax which is intended to be our pro rata share into the highway trust fund to pay for the use of the highways. In Greyhound's case that means about $6 million a year; it is roughly double for the entire industry. That compares with Amtrak's roughly billion dollar subsidy.

So we are going to fill service gaps. MilwaukeeChicago is one that we are looking at closely. Although with the news today, if the State continues to run the service, then that will diminish the opportunity for unsubsidized private opportunity in that corridor. But where that service is discontinued, we will certainly intend to fill that gap.

And I do want to make the point that although we are keeping the States informed and getting their advice on where they would like service, we are not seeking any subsidy. This is unsubsidized private sector service.

We are also cooperating directly with Amtrak. The Greyhound CEO and Mr. Downs met last week and mapped out a strategy. Certainly Mr. Capon's comments about intermodal transportation centers is right on. We are active participants in the Spokane terminal. We gave Mr. Downs a list of about 60 other Amtrak terminals that we would like to see turned into transportation centers. There is plenty of opportunity to work together in that area.

More importantly, there is an opportunity to work together on interline relationships, that is, through ticketing and baggage checking, so that the Amtrak subsidy, whatever the final number is, can be used to maximize Amtrak service advantages, that is particularly shorthaul, dense corridors and have intercity bus service providing long haul feed into that system, whether it is a system of regional clusters or however it is defined. So there is a lot of long-term potential there through intermodal cooperation.

However, that potential will be greatly damaged if Amtrak is allowed to continue to use its Federal subsidy to operate subsidized contract bus service in competition with unsubsidized existing regular route bus operators. The fact of the matter is that neither Greyhound nor any other bus operator in the long run can operate unsubsidized bus service in competition with a subsidized bus service.

We have learned how to compete with subsidized rail. We are not here complaining about that. But if we are going to be an integral part of the Nation's surface transportation network and if we are going to work on a cooperative basis with Amtrak to strengthen that network, we believe that is a line that needs to be drawn.

Just to give you a brief example of the effect of that service, it is most prevalent in California. In the last fiscal year, there was $14 million of generated revenue on to the Amtrak system, that is the bus and rail component of that system under the California Ambers program. The vast majority are on routes directly competitive with Greyhound and otherwise would have likely traveled on Greyhound. So let's say 80 percent of that 14 million is revenue that Greyhound lost and that it would have expired with existing service. So it was almost all bottom line revenue.

Now it wasn't much of a great deal for Amtrak or the State of California either because the cost of that service was $11.5 million. So for $14 million potential loss to the private sector, the public sector, that is, the Amtrak California transportation program only picked up $2.5 million in net revenue. To us, that does not make good sense in creating an integrated and strong service transportation network and we would like to see it stopped.

Mr. KNAPPEN. They have gotten into the bus business basically in the last, really the last several years on a nationwide basis. It is about 10 years in California. But the way it operates, and there are different variations of it. Essentially, they contract with charter operators to paint their buses with Amtrak colors, use Amtrak tickets, and they pay them to run service in competition, generally speaking, with Greyhound.

An example might be OmahaKansas City. There is a contract bus service operating between those two points. There are many in California. Bakersfield, Los Angeles, East, West through Sacramento and various others around the country. Over 80 percent of those directly compete with Greyhound. And they are operated, as I say, on a contract. They pay the bus operator to run the service.

Mr. LIPINSKI. Is this to feed people into their passenger trains?

Mr. KNAPPEN. It is not only to feed people into their passenger network; it is also in some cases to carry those people point to point on the bus.

Mr. LIPINSKI. Has Greyhound attempted at all to enter into a contract to do this kind of work for Amtrak?

Mr. KNAPPEN. Well, what we would like to do and what we think the statute authorizes is interline relationships. That is, working as equal partners with Amtrak because we are running that service now. So we really don't want to contract with somebody and run it at their direction as opposed to the way we do it; we want to cooperate with them and work out a mutually general arrangement. We have done that and hope that we can do it in more cases.

A very good, recent example is formerly from Burlington, Vermont, to Springfield, Massachusetts, Amtrak was running a contract bus service. They have now entered into an interline agreement with Vermont Transit Service to have interline connections with them and tie the bus to the train. But each party keeps their revenue and it is essentially a cooperative relationship between partners. And it is not taking revenue away from existing bus operators.

Mr. LIPINSKI. Other than the Amtrak contract bus service, does Greyhound really have any other competition in the bus business nowadays?

Mr. KNAPPEN. We are actually seeing increasing competition in the bus business. At the time of the Greyhound-Trailways merger in 1987, the new Greyhound had about 90 percent of the bus market, but after the strike and the Chapter 11 bankruptcy in the 1990, 1991 time frame, intramodal competition in certain markets has grown and Greyhound's intramodal market share is down to around 70 percent. The intramodal competition is most prevalent in the Northeast Corridor. You can walk right over to the Senate side of the Capitol and there is a Peter Pan station right across from the Greyhound station and Peter Pan runs extensive service in the Northeast Corridor. So there is an increasing amount of intramodal competition.

Mr. LIPINSKI. There is no nationwide bus company, though, like Greyhound, is there?

Mr. KNAPPEN. No, there is not.

Mr. LIPINSKI. I ask those questions because back in the early 1960s I was employed by the National Bus Traffic Association to make up--I was a rate clerk for Greyhound and Trailways.

Mr. KNAPPEN. I know NBTA well and I actually served on their board for many years.

Mr. LIPINSKI. Thank you very much.

Mr. MICA. Mr. Knappen, you know there is some pretty serious budget cutting going on around here and if we ended service to the 56 communities that you mention that would not be served by your bus system, what is the likelihood of that service being picked up?

Mr. KNAPPEN. I think it depends on the size and location of the community. Certainly there are some on the list, Jefferson City, for example, in Missouri, which we would like to pick up, assuming that the Missouri Mule is discontinued. Actually, we used to run the service through Jefferson City but discontinued it back in the 1980s. I think Clemson, South Carolina, is another one where you would see service.

I would say most of the ones on the list, however, if you really look at the map and the size of the community, they are for the most part so close to towns that have service, that you would not--La Plata, Maryland, would be a good example of that.

Mr. MICA. I guess you have looked at the list of the areas in which Amtrak is going to downsize its frequency of service. They are discontinuing three routes, from what I understand under the April 1--

Mr. KNAPPEN. Yes, I think--I am not sure where discontinuances end and downsizing begins. But we are both aware--

In the downsizing of service, I think most of them have gone to three days a week to keep from falling under some of these other statutory mandatory requirements that would kick in. Are you also anticipating picking up frequency of service in your line?

Mr. KNAPPEN. Where that is necessary, but could I make a point there. A good example of that is the Crescent, which as I understand it has gone or is going to three days a week. There has been a lot of talk both on this side and the other side of the Capitol of the loss of service at Meridian, Mississippi, on the Crescent which is now only getting it three days a week. There are 14 round-trip intercity bus schedules a day going through Meridian, Mississippi, going north to Birmingham, west to Jackson, east to Montgomery, south to New Orleans. There is really no need to add service, so we have to look at it on a case-by-case basis.

Mr. MICA. I see. Are there any other areas that you would recommend that Amtrak get out of the business in light of the proposals they have made to date?

Mr. KNAPPEN. I am not sure that that is our area of expertise. But we do want to--it is clear that you are focusing on where they can serve best with minimum subsidy dollars and we want to work with them to provide service elsewhere to feed into what remains.

Mr. MICA. You are ready to take the slack but you are not going to stick your neck out on this cut-and-slash mentality.

Mr. KNAPPEN. We are going to stick to the bus business and leave the big policy decisions--.

Mr. MICA. I know that you have had your ups and downs financially. How are you all doing?

Mr. KNAPPEN. Much better.

Mr. MICA. Are you turning a profit?

Mr. KNAPPEN. We did not last year. We had a significant loss, but we restructured in the fourth quarter, reduced debts by $100 million, and firmed up the balance sheet. I think we have the plans in place to be profitable on an operating basis going forward.

Essentially, the plan is to have that nationwide system and make sure it is operating as a system.

Mr. MICA. Maybe we can give you a little bit more business before it is all over. We appreciate your testimony and your participation and your endurance to the end. Thank you, Mr. Knappen.